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A SHORT HISTORY OF

PAPER MONEY & BANKING

Also Published In

Reprints of Economic Classics

By WILLIAM M. GOUGE

THE FISCAL HISTORY OF TEXAS [1852]

SHORT HISTORY
OF

PAPER MONEY AND BANKING


IN THE UNITED STATES
TO WHICH IS PREFIXED

AN INQUIRY
INTO THE

PRINCIPLES OF THE SYSTEM


BY

WILLIAM II. GOUGE

[1833]
With An Introductory Essay
"William M. Gouge and the Formation of
Orthodox American Monetary Policy"

By JOSEPH DORFMAN

Reprints of Economic Classics

AUGUSTUS M. KELLEY PUBLISHERS

New York 1968

First Edition 1888


(Philadelphia: Printed by T. W. Ustick; and for Sale
by Grigg & Elliott, No.8 N. Fourth St., Uriah Hunt,
No. 19 N. Third St., Hogan & Thompson, No. 139%
Ma1ket St., 1888 )

Reprinted 1968 by

AUGUSTUS M. KELLEY PUBLISHERS


New York New York 10010

Library of Congress Catalogue Card Number


65-26866

ABJ::

Gift
Publiah~I

Copy
PRINTED IN THE UNITED STATES OF AMERICA

~Y SENTRY PRESS, NEW YORK, N. Y. 10019

William M. Gouge and the Formation

of Orthodox American Monetary Policy


Few areas in American history have undergone
such intensive study in recent years as the Jacksonian era. A major subject of controversy in that
period is monetary and banking policy. It began
with President Jackson's successful veto of the bill
for rechartering the embryonic central bank, the
Second Bank of the United States, in 1832. The
subsequent struggle on both the federal and state
levels rocked the nation intermittently for a decade.
The ablest writer on the orthodox Jacksoni~n hardmoney side was William M. Gouge (1796-1863); the
bible of the movement was his' A Short History of
Paper Money and Banking in the United States, ...
to which is Prefixed an Inquiry into the Principles
of the System (1833).1
It seems to have been the first American economics
treatise to win an international reputation. An
abridged version was published in the influential
Brussels journal, La ReV'ite Universelle ; in England
the second part, the history part, was brought out
by the leading political journalist, the radical William Cobbett. The foremost popularizer of the
dominant British classical school, J. R. McCulloch,
commended the treatise for its detailed history of
American banking. The praise which it received at
home as well as abroad was in good part due to
1

The edition which is reprinted below is the first edition.

Subsequent editions contained only minor changes. The last


appeared in 1841-1842 as supplements to his bi-weekly The
Jt:YUrnal of Banking.

WILLIAM M. GOUGE AND THE FORMATION

Gouge's careful research. For this he spent over two


years at the library of the American Philosophical
Society, Philadelphia, a rough counterpart of the
famed British Museum. Gouge supplemented this
by correspondence with knowledgeable persons in
various states. Such was the level of the work that
it is still a primary source for information on the
history and organization of American banking,
especially for the first third of the nineteenth
century, a period when the veil of secrecy surrounding banking was even tighter than in other fields.
Gouge was an agile writer, shy in personal contact and adverse to speech making, but possessed of
a persuasive pen, steeped at times in wit and satire.
He "was one of the most thorough students of our
early banking [including the security and money
markets] and also one of its keenest and most
influential critics. ' '2
To furnish perspective on his monetary and banking views, it seems desirable to provide a short biographical sketch and a statement of his general
economic philosophy. The son of an apothecary, he
was born and raised in Philadelphia. Though he
was to spend most of his mature life in Washington,
he always preferred large cities, especially New
York. 3
2 Harry E. Miller, Banking Theories in the United States
Before 1860 (Cambridge, Mass.: Harvard University Press,
1927) p. 86.
3 While inspector of customs in New York in 1843, Gouge
was reluctant to be transferred to Washington on the ground
that New York" affords a greater variety of objects with
which to divert the mind." (Gouge to J. C. Spencer, October
25, 1843, National Archives, Treasury.)

OF ORTHODOX AMERICAN MONETARY POLICY

His career consisted largely of his activities as


a financial journalist and as an employee of the
-United States Treasury; he pursued these occupations simultaneously for a good part of his life. He
began as a journalist and first achieved prominence
in Philadelphia while serving as co-publisher and
editor (with Stephenson Smith) of the Philadelphia
Gazette and City Advertiser from 1823 to 1831. He
devoted the newspaper chiefly to monetary and
banking reforms, advocating primarily what became a part of the Jacksonian creed, the prohibition
of small bank notes, as a first step in the elimination
of all bank notes. At the same time he helped prepare a so-called "workingmen's" memorial to the
Pennsylvania legislature which sought to prohibit
the chartering or rechartering of banks with the
corporate power of limited liability.4 But this was
one of those periods when there was relatively little
public interest in currency and banking questions.
Gouge's newspaper constantly lost subscribers and
he was forced to give up what" had promised to be
one of the most lucrative newspaper establishments
in the country. " 5
Ten years later, he again attempted the role of
4 For a discussion of this memorial, see Joseph Dorfman,
"The Jacksonian Wage Earner Thesis," 1949, reprinted in
The Economic Mind in American Civilization (1946; reprinted by Augustus l\L Kelley Publishers, 1966) II,
appendix.
5 Gouge to F. P. Blair, August 17, 1831, Blair Papers,
Princeton University Library. He explained that the Gazette
had not attacked that "terrific institution," the Second
Bank of the United States, because he would soon have been
without adequate funds just to print the paper.

WILLIAM M. GOUGE AND THE FORMATION

editor and publisher; he started the bi-weekly The


Journal of Banking, but the result was the same.
After a year he was forced by the loss of subscriptions to suspend publication, complaining of the
public's antipathy to economic abstractions, especially "the science of currency." He pointed to the
fate of TheJournal of Banking as further evidence
that" no journal of political economy or statistics,
in either Europe or America . . . has ever repaid
expenses. ' , 6
Gouge's journalist activities were not limited to
his own ventures; from the 1830 's down to the
Civil War he was a valued contributor to and
adviser of such influential financial and economic
journals as Hunt's Merchants' Magazine and The
Bankers' Magazine and Statistical Register, and
such leading Democrat~c party organs as the Washington Globe and The United States Magazine and
Democratic Review.
From about 1834 to March 1862, Gouge was with
the Department of the Treasury except for relatively short periods when the Democrats did not
occupy the presidency. Even when the Whigs and
their successors were in power, he managed to retain
his post for a part of the time. 7 He began, as he
put it, as a "mere accountant and copyist, " but was
Notice, " The J oornal of Banking, June 22, 1842, p. 404.
Gouge was dismissed in April 1841 when the Whigs came
to power, but he came back in 1843. In April 1851, after the
Whigs had won the presidency, Gouge was again forced out
and finally on March 3, 1862, after the Republicans had been
in office for a year, he was dismissed. At the time his salary
was $1,600 a year.
6 , ,

OF ORTHODOX AMERICAN MONETARY POLICY

soon charged with the duties of what may be called


"the statistical and politico-economical clerk" of
the bureau that served as the immediate staff of
the Secretary of the Treasury.8 In this capacity
he should be credited with services of value not only
to government but also to the growth of economic
science and especially monetary and banking policy.
As he described it, his was the task of collecting
and arranging the materials that went into the
detailed statement of the condition of the banks
throughout the Union which the Secretary of the
Treasury laid before Congress each year. 9 He
used his skills as accountant and statistician to
improve the collection and systematization of monetary and banking data that Treasury, Congress and
the business world used in making decisions. 10
Perhaps more important for our purposes was
his involvement in policy making. He served as an
economic adviser to secretaries of the treasury in
Democratic administrations and such outstanding
Jacksonian leaders in the monetary controversies
as Senator Thomas IIart Benton of Missouri and
Benjamin F. Butler, Attorney General in Jackson's
second administration. Occasionally Gouge worked
directly with President l\iartin Van Buren.
8 Gouge to President Van Buren, July 17, 1840, Van Buren
Papers, Library of Congress; Gouge to J"ames G. Guthrie,
March 10, 1853, National Archives, Treasury.
9 Even when out of government service, he continued to
collect data in part with the help of correspondents such
as his fellow collector of statistics and future Democratic
party candidate for the presidency, Samuel J. Tilden.
10 This function is now largely performed by the Comptroller of the Currency.

10

WILLIAM M. GOUGE AND THE FORMATION

His general economic philosophy was in the


J efferson-Jackson laissez faire tradition. This view
he showed more formally in his adherence to Adam
Smith and "the axioms of political economy" of
the British classical school typified by David
Ricardo and its continental counterpart led by
Jean-Baptiste Say.ll Gouge, like the classical
economists, held that the theory of value was basic
in any economic discussion. The laws of supply and
demand were all-powerful in the determination of
value. For natural value, cost of production was the
determining condition of supply, and back of
demand was the adaptation of the goods to the wants
and desires of the people. "The market value . . .
is in the compound ratio of their utility and of
their scarcity. "1'2 Thus the prices of goods and all
factors of production would be "much better regulated by free competition than ... by governmental
enactments. ' , 13
11 His favorite was always Adam Smith. He complained
that The Wealth of Nations was seldom reprinted in the
United States whereas English translations of Say's treatise
were reprinted many times; "but this is chiefly owing to its
having been adopted as a textbook in the colleges, and to a
study of it being requisite to enable young men to take their
degrees." (" Political Economy," The Journal of Ban:king,
February 2, 1842, p. 242).
12 Below, Part I, pp. 10, 11.
Gouge commented on what came to be called marginal
utility analysis: "Value is, according to some approved
writers, in its ultimate analysis, 'a judgement of the mind.'
It would carry us too far into the regions of metaphysics to
show how they make this out." (" The Standard of Value,"
The Jour'TWJ1, of Banking, March 16, 1842, p. 290).
13" Remarks, "
The JO'Il/Nwl of Banking, December 22,
1841, p. 196.

0]' ORTHODOX AMERICAN MONETARY POLICY

11

Business corporations, especially banks, possessed


of the privilege of limited liability and other
perquisites, were "incompatible with the equality
of rights and unfavorable to the progress of national
wealth. " In the absence of "the Argus eyes of
private interest ... their affairs are much more carelessly and ... expensively conducted than those of
individuals." 14
He questioned the desirability of laws fixing a
maximum rate of interest; here he differed fronl
his master, Adam Smith, and followed instead
Jeremy Bentham's Defence of Usury (1787).15
"Loanable capital in the form of money, varies in
value ... [Consequently] it is as absurd to attempt
to fix the rent or interest of money ... as it would
be to :fix the rent of houses or lands that are bought
,vith money." Furthermore, if banks were free to
raise the interest on loanable capital, as its value
in the market increased, this action ,vould "put the
whole community on their guard, and many a fever
of wild speculation would be checked" at the very
start. 16 Similarly governments might issue bonds at
a heavy discount but they must redeem them at
their nominal price lest the affected states lose their
credit.
Below, Part I, p. 41.
Gouge commented humorously that the tract" was free
from those peculiarities of phraseology which render other
of Bentham '8 works sealed books to the great mass of
readers." ("Bentham 011 Usury," The Journal of Banking,
April 18, 1841, p. 52).
16 "Banking as It Ought to Be," The United States
Magazine and Democratic Review, April 1843, p. 427.
14

15

12

WILLIAM M. GOUGE AND THE FORMATION

The claims of the honest capitalist, Gouge insisted,


were just as sacred as those of the honest laborer.
His theory of wages was the traditional wages-fund
doctrine: "Every increase of capital increasing the
fund out of which wages would be paid, would
increase the reward of the laborer. " Gouge chastised
the lazy and improvident for neglecting to accumulate a capital and thus making themselves
independent of "others for means of both subsistence and employment." 17
On the other hand, on matters such as the safety
of steamboat passengers, he was a strong supporter
of the policy of regulation which President Jackson
had promoted. Thus in reporting in 1854 to the
Secretary of the Treasury on the workings of the
steamboat inspection law, he said that so many
disasters occurred from steam navigation unregulated by law that passengers had to look to the
government for protection.
On matters of central concern to him, money and
banking, Gouge argued that the precious metalsgold and silver - were chosen to be money, because
their particular qualities" fitted them to be standards and measures of value, and to serve, when in
the shape of coin, the purposes of a circulating
medium. " They were the most convenient instruments of valuation, especially since they varied
less than all other goods "from changes in the relation of supply and demand.' '18 At the same time,
he pointed out that bank deposits must be viewed
17

18

Below, Part I, pp. 91, 132.


Below, Part I, p. 10.

OF ORTHODOX AMERICAN MONETARY POLICY

13

as part of the circulating media, that they might be


created by the process of bank loans, and that they
had exactly the same effects on prices as bank notes. 19
Gouge deprecated any deviation from a metallic
currency. He contended in the treatise that the
present mixed system of currency, of specie and
bank notes redeemable on demand in specie, was the
primary source of economic evils, especially inflation
and subsequent severe depression. Anything that
excites the spirit of speculation encourages a
tendency to increase the amount of bank issues. \Vith
the increase of paper money, prices rise, though in
uneven fashion, until eventually the prices of some
goods substantially exceed their prices abroad. The
resulting adverse balance of trade brings a halt in
the rise of prices. Since the foreign sellers will not
accept the paper money, importers demand specie
from banks. The bankers in turn start calling in
loans and refuse extensions and their debtors in turn
press their own debtors in what seems an endless
chain. The contraction causes a rapid, sharp fall
19 "He who has deposited money in the bank, and he to
whom it has been loaned, appear as competitors in the same
market. . . . It is the same sum of money. . . . But there are
two credits for this money in the bank, and the credit is
equivalent to cash, both to him who has deposited the money
and him to whom it has been lent." (Below, Part I, p. 23.)
In 1859 Gouge argued that "dullness of business complained of at the beginning of the present year in some
parts of the country" was due to the fact that "many
chose to let deposits lie inactive rather than employ them
in enterprises in regard to which they could come to no
satisfactory conclusion."
(" The Banks of the United
States," The Bankers' Magazine and Statistical Register,
July 1859, p. 5.)

14

WILLIAM M. GOUGE AND THE FORMATION

of prices and goods cannot be sold except at a heavy


loss. Multitudes become bankrupt but as prices
decline, imports fall and gold eventually returns.
The eonfidence of the banks is revived and they
begin to issue paper money again, and the circle
of expansion and contraction is on. The effect of
the restriction of the money supply under a banknote currency was much worse than under a specie
standard because of the multiple contraction that
results in the" pressure" on the community. Gouge
estimated it as fourfold. Not least of the effects of
the contraction is the substantial unemployment.
Here he brought into play what is called the income
approach: "as one man is thrown out of employment, his effective demand for the product of his
neighbor's labor is diminished.... If twenty clerks
are deprived of employment, the shoemaker may
find it necessary to dismiss one of his assistants ...
and so of all other trades. ' '20 In more modern terminology: "as contraction of the currency, by diminishing purchasing power, spoils the market, one
employer after another must release his workers.
The discharge of a considerable number of employees, depriving them of their incomes, prevents
their purchasing as freely as usual, thus tending
to diminish production in other lines and further to
increase unemployment. A progressive deterioration
of the market is introduced, and with it goes like
slackening of production." 21
Below, Part I, p. 27.
Miller, Banking Theories in the United States Before
1860, pp. 203-204.
20

21

OF ORTHODOX AMERICAN MONETARY POLICY

15

Gouge insisted that this must not be interpreted


as giving approval to the heretical doctrine that
general overproduction was the cause of the crisis:
"If the real wants of the community, and not their
ability to pay, be considered, it will not perhaps be
found that anyone useful trade or profession has
too many members.... But, in one sense, all businesses may be said to be 'overdone' since all businesses are by this system rendered unprofitable to
those who are engaged in them." Gouge concluded
that any good done by corporate banks is overbalanced by "their continual alterations of the
measures of value, by the uncertainty they give to
trade, and by the advantages they confer on some
men over others." 22
He maintained that the various restrictions on
banks that were proposed would not be effective.
Take for example, what was then becoming the
orthodox view of the proper kind of bank loans;
namely, that, if banks would not discount" accommodation notes" but only short term business paper,
real commercial bills, they would not overissue. 23
Below, Part I, pp. 27, 49.
A good statement of the theory, later called the" realbills" doctrine, is as follows: "Restriction of bank earning
assets to real bills of exchange will automatically limit, in
the most desirable manner, the quantity of bank liabilities;
it will cause them to vary in quantity in accordance with the
'needs of business' and it will mean that the bank's assets
will be of such a nature that they can be turned into cash
on short notice and thus place the bank in a position to meet
unlooked for calls for cash." [Lloyd W. Mints, A History
of Banking Theory in Great Britain and the United States
(Chicago: University of Chicago Press, 1945) p. 29.]
22

23

16

WILLIAM M. GOUGE AND THE FORMATION

But the discounting of such bills, said Gouge, might


cause inflation because" the same lot of goods might
be sold to a dozen persons, and each might give a
note, and each of these twelve notes might be discounted at bank." Furthermore, the most stringent
legislation could not restrict banks to commercial
bills, "if this paper did not afford full employment
to all their 'capital' and all their 'credit.' " He
expresses sympathy with the proposal to limit
bank dividends on the ground that it "would remove many inducements to over-banking," but felt
that such a measure would not be adequate. 24
He ruled out rechartering the Bank of the United
States as a regulator of the state banks not only
on constitutional grounds but also on the ground
that as an incorporated paper money bank it would
produce as in the past the same evils as the state
banks. As a profit making institution, the central
bank could hardly be expected to act to restrain
the inflationary tendency of state banks, but would
itself expand and contract as they did.
As an ideal remedy Gouge proposed prohibition
of all incorporated paper money banks; that is, to
eliminate their privileges of limited liability and
note issue. In their place he would have banks
subject to unlimited liability, lending only their
own capital plus savings deposits (time deposits)
and maintaining a hundred per cent specie reserve
24

Below, Part I, pp. 50, 51, 52.

OF ORTHODOX AMERICAN MONETARY POLICY

17

against demand deposits. In this sense, banking, like


all other businesses, should be free. 25
Gouge expected that private banks would rise up
to receive deposits, discount promissory notes and
deal in exchange. "The bankers would be men of
great wealth, for it is in lending money that men
of large fortune can employ their capitals with
most profit and convenience." 26 Their competition
would result in more favorable terms to borrowers.
They should and would allow interest on savings
deposits. At the same time, these banks should impose a small charge in proportion to the amount
of service they rendered customers "in the collecting of bills, the receipt of [demand] deposits, or the
payment of drafts. In this way, they who derive
advantage from the banks would pay their neces25 Historians of American banking theory have generally
held that Gouge in the late 1830 's began to look favorably
on banks of issue if they followed the real bills doctrine.
This view was based on certain ambiguous statements in his
"Commercial Banking," (Hunt's Merchants' Magazine,
April 1843). Interestingly, the same article caused a fellow
journalist and opponent of banks of issue to express regret
that Gouge sanctioned such banks. Gouge in a private letter
to a friend said that he had been misunderstood. "I intended
it as an introduction to other articles in which it was my
desire to show that banks of issue cannot be so managed
as not to produce evil. In .The [United States Magazine and]
Democratic Review for April, I have published an article
entitled' Banking As It Ought to Be,' in which I have given
a compendious view of the whole subject." (Gouge to Henry
Lee, May 1, 1843, Lee Papers, Massachusetts Historical
Society). In the latter article, Gouge bluntly states" we are
for having the money of the country exclusively metallic."
The article has been overlooked by scholars, doubtless because
it was anonymous.
26 Below, Part I, p. 49.

18

WILLIAM M. GOUGE AND THE FORMATION

sary expenses. Now, these expenses are paid by a tax


levied in an indirect way, on the whole community. "27
Gouge granted that the sudden ending of the old
banking system, especially the prohibition of all
bank notes, "would be ruinous" to the economy.
The answer was to begin with small notes and proceed gradually to those of the highest denomination. 28 This suggestion became a basic monetary
policy for President Jackson and his followers, and
it enjoyed some success for a time as regards
denominations under $5.
27" Banking As It Ought to Be,"
The United States
Magazine and Democratic Review, April 1843, p. 426.
28 Below, Part I, p. 138. Gouge originally proposed that
the minimum denomination be $5; by 1837, he held that the
minimum should be "$50 or perhaps $100." (Gouge to
Nathan Bunker, November 15, 1837, Princeton University
Library).
As late as 1897, Gouge's view in a modified form was
maintained by the eminent Harvard economist Frank W.
Taussig. He argued that a way of achieving the drculation
of gold was to prohibit bank notes of denominations of $20
and smaller. (Answer to questionnaire in "United States
.Monetary Commission, Currency Reform," 1897, Typescript,
p. 707. Columbia University Libraries).
Gouge's underlying logic was: "[since] an efficient
demand ensures a supply ... abundant issues of paper cause
, 'specie to flow out of a country"; and elimination of the
paper causes an inflow of specie. " [A]n efficient demand for
gold and silver . . . of all demands . . . is the one which is
the most readily met. Light of carriage and small in bulk,
when compared with their value, the precious metals defy
all political regulations which are intended to prevent their
obeying the laws of effective demand." An Inquiry into
the Expediency of Dispensing with Bank Agency and Bank
Paper in the Fiscal Concerns of the United States (Philadelphia: Stavely, 1837) p. 43. Hereafter referred to as
An Inquiry.

OF ORTHODOX AMERICAN MONETARY POLICY

19

Another of Gouge's proposals which had much


greater success and one with which his name is most
closely identified was the Independent Treasury, or
Sub-Treasury System. After President Jackson's
veto of the bill for rechartering the Second Bank
of the 'United States there arose the question of the
future handling of the fiscal concerns of the federal
government; that is, the holding, receiving and disbursing of federal funds. There was a discussion
over whether this should be largely performed by
selected state banks or exclusively by the government. Gouge had argued in A Short History for
the latter; government fiscal operations would be
handled through the treasury with the help of subtreasuries; and only specie 'would be used. He had
explained that:
If the state banks vvere made the depositories
of the public funds, and if their notes were
made receivable in payment of duties, the evils
of the [paper money] system would be increased. If the Governlnent should, after the
expiration of the present charter of the lTnited
States Bank [in 1836], resolutely refuse to
receive anything but gold and silver in payment
of debts, and also refuse to employ any bank
as an agent in its fiscal operations, the evils of
the system would be greatly diminished. 29
As the foremost work on the history of American
banking theory summarized his basic doctrine:
Gouge ... desired a "constitutional treasury
system ", as he called it, for the reason that it
would abolish all connection between the banks
29

Below, Part II, p. 218.

20

WILLIAM M. GOUGE AND THE FORMATION

and the government. If the government deposited its balances in the banks, the latter would
then have larger reserves upon the basis of
which they might expand; if the government
allowed itself the privilege of borrowing from
the banks, such a practice would surely lead to
inflation; and even if the government merely
accepted bank notes in payment of taxes, the
result would be inflationary. lJnder the sub
treasury system, however, there was a continual
flow of gold between the banks and the treasury,
and this fact served as a constant check on the
banks, "not as does the foreign demand at uncertain intervals of months and years, but daily,
nay, hourly." The only rational objection, he
thought, was that even so, the check 'was not
strong enough.
[Most important of all] ... a larger quantity
of specie would be in circulation, thus bringing
the money supply a step nearer that of a hard
money system.... It was his contention that, if
the government received and paid out only coin,
additional specie would be imported, and thus
the supply of specie in circulation would be increased and the volume of bank obligations
decreased. The increase of specie, he claimed,
would have the further advantage of producing
an increased supply of reserve money available
to the banks upon the contraction of their loans.
He pointed to the advantage of the "constitutional treasury system" in furnishing an improved means of interregional transfer of funds.
Finally, he contended that in the case of a large
payment of gold by the government there would
be no disturbance to business, whereas, if the
banks were acting as the fiscal agents of the

OF ORTHODOX AMERICAN MONETARY POLICY

21

government, such a payment would result first


in inflation and later in contraction, with all its
unfortunate consequences. 30
Gouge showed imagination when he described the
government as "the greatest capitalist and the greatest dealer in the country" because of the immense
volume of transactions, especially those growing out
of land sales and customs duties, the main sources of
its income; and proceeded to say" Let such a capitalist and such a dealer decline receiving and paying
bank paper," and the issues of the banks would be
substantially reduced. 31
President Jackson at first went contrary to
Gouge's views by ordering Secretary of the Treasury Roger B. Taney in October 1833 to begin the
process of removing the deposits from the Bank of
the lJnited States to selected state institutions. But
Jackson and some of his cabinet had grave doubts
as to whether this should be the permanent policy.
So much so that, when Gouge entered the Treasury,
Levi Woodbury, the new secretary, had him prepare
, , A Memoir on the Expediency of Establishing SubTreasury Offices." 32 In the" Memoir", dated April
1835, he outlined not only the argument "in the
abstract" but also the details of its practical operation and cost.
No action was then taken on the proposal, according to Gouge, because men supporting the idea of a
30 Mints, A History of Banking Theory in Great Britain
and the United States, pp. 174-175.
31 An Inquiry, p. 15.
32 The "Memoir" is in the Woodbury Papers, Library of
Congress.

22

WILLIAM M. GOUGE AND THE FORMATION

league of state banks to perform the role of fiscal


agent had the ear of the administration and especially Woodbury. But when a money panic began in
May 1837 and banks suspended specie payments,
Gouge, immediately and without informing the administration, published an elaborated version of the
"Memoir" under the title, An Inquiry into the
Expediency of Dispensing with Bank Agency and
Bank Paper in the Fiscal Concerns of the United
States. He archly explained to Secretary Woodbury
that "1 did not mention to you, or to any other
member of the cabinet, my intention of making this
publication, because 1 thought that from my peculiar position, it might be regarded by some as a
feeler put forth by the administration, and I wished
no person but myself to be compromitted by it, in
case it should not prove acceptable to the public. "33
President Van Buren made the Independent
Treasury system the major issue for the special session of Congress in September 1837. After a three
year fight and a temporary split in the party, it
became law in 1840. Gouge, who during the battle
was saluted by the supporters of the measure as a
master mind and by opponents as the evil genius,
began installing the system. The law was repealed
after Van Buren was defeated for re-election at the
end of 1840, but in 1846 it began a long career as
the major regulator of the monetary and banking
system of the country until the establishment of the
Federal Reserve System in 1914.
Gouge not only established the system but he also
33

Gouge to Woodbury, June 29, 1837, Woodbury Papers.

OF ORTHODOX AMERICAN MONETARY POLICY

23

was on the alert to close loopholes. Thus in 1854 he


proposed, and Secretary of the Treasury James G.
Guthrie adopted, a scheme for reducing transfers of
specie to a miniInum without making the drafts
a currency. These could be obtained at any subtreasury on deposit of the specie at the issuing office,
but they had to b~ drawn on a specified sub-treasury
in order' , to prevent their passing from hand to hand
as currency. For with the restrictions as to the place
of redemption, if they circulated at .all, they would
remain in the neighborhood of the sub-treasury at
which they were payable. ' '34
The sub-treasury system won such general approval that ex-president Martin Van Buren could
state in the late 1850's that it was the only clear case
of a public measure or act "entirely acceptable to
all sides. "35 It gained this strong support from its
practical success in maintaining the credit of the
government, especially during the panic of 1857.
As President Buchanan noted in his annual message
of December 7, 1857, "Thanks to the Independent
Treasury, the Government has not suspended [specie]
payments, as it was compelled to do by the failure
of the banks in 1837." By this measure as well as by
his writings, Gouge played a large role in solidifying
if not in rendering more rigid the tradition of hard
money that continued to dominate American mone34 David Kinley, The Independent Treasury of the United
States and Its Relation to the Banks of the Country (Wash-

ington: Government Printing Office, 1910) p. 67.


35 Inquiry into the Origin and Course of Political Parties
in the United States (New York: Hurd and Houghton, 1867)

p. 261.

24

WILLIAM M. GOUGE AND THE FORMATION

tary and banking policy down to World War I,


despite the modifications that were made in the
original legislation. 36
American historians have until very recently
widely held that Gouge was the militant champion
of the downtrodden western farmer or of the exploited wage earner of the urban east, or of both.
Interestingly, he refuted that view in the 1840 's in
The Journal of Banking. After noting a number of
leading business men who supported hard money, he
exclaimed that "the friends of sound currency and
sound credit have ... borne too long in silence the
reproach of being' a miserable set of loco-focos, disorganizers, radicals, levellers, destructives, agrarians, infidels, and atheists '." The substantial number
of "large (solid) capitalists" and professional men
on the subscription list should dispose {)f the diatribe
that "dissatisfaction with the present banking system is confined to those whose own hard fortune has
made life bitter to them.' '37
He also noted that his essay" The True Principles
of Commercial Banking" (The United Slates Maga36 Under the National Bank Act of 1863, the treasury could
use the banks chartered by the federal government as depositories for its revenues, except customs duties, and by an
act of 1907 the exception was dropped. Even after the
establishment of the Federal Reserve System in 1914, it was
not until 1916 that the secretary of the treasury began to
transfer funds from the sub-treasuries to the Federal Reserve
district banks. The last sub-treasury was closed in 1921 under
the Act of May 19, 1920.
37 "Obituary," The Journal of Banking, March 16, 1842,
p. 310; "Subscribers' Names," The Journal of Banking,
June 22, 1842, p. 404.

OF ORTHODOX AMERICAN MONETARY POLICY

25

zine and Democratic Review, May 1838) "was much


commended by many commercial men, and others,
who, from their position and previous studies, were
well qualified t9 judge of its merits and defects.
Among others ... a Director of the Bank of England
was so pleased with it, that he sent to this country
for copies of all the writings of [its] author.' '38
Gouge conceived of himself as an" intellectual,"
belonging to the growing class of "disinterested
political economists.' '39 To achieve necessary banking reform, he realized that more was required than
the arguments of a "disinterested political economist. " "It is partly by assistance . . . coming from
men who would as willingly, if their political ambitions could thereby be gratified, ... aid the banks as
oppose them, that I hope for reform.... [I] t is remarked by a theological writer that the wicked are
frequently the instruments of doing more good than
the righteous, inasmuch as worldly ambition in the
minds of the first is generally a much stronger passion than disinterested benevolence in the minds of
the latter, and, therefore, when the worldly ambitious happen to seize hold on a right measure, they
push it with far more energy than would be done by
those actuated solely by desires to promote the
public good."
He felt that the church had been and could be a
powerful force for reform, but the ministers were
38" The True Principles of Commercial Banking,"
The
Journal of Banking, August 4, 1841, p. 36.
39 The phrases are from Gouge to President Van Buren,
July 17, 1840, Van Buren Papers, and Gouge to Henry Lee,
May 1, 1840, Lee Papers.

26

WILLIAM M. GOUGE AND THE FORMATION

so split on bank reform that not too much dependence should be placed on the church on this question.
Suppose people's minds will not "-yield to the disinterested effort of political economists, to the more
selfish efforts of ambitious politicians, or even the
heavy artillery of the church. What then' We must
do what we can to check the evils we cannot cure. To
preserve the balance between evil and good in the
world, is all that, according to some writers, can be
done. If moral effort ceases, evil will quickly predominate. ' '40
The obituary of Gouge which appeared in that
conservative journal, The Bankers' Magazine,
summed up the dominant opinion on the man and
his book: He was "exceedingly well informed on
all questions of finance" which he discussed with
considerable skill and his book was" a very able and
clear exposition of the principles of banking and
of the mistakes made by our American banking
institutions. ' '41
Gouge to Henry Lee, November 7, 1840, Lee Papers.
Editorial, "William M. Gouge," The Ban-kers' Magazine and Statistical Register, September 1863, p. 242.
40
41

JOSEPH DORFMAN

Columbia University
October 1967

.h.

~ .$.

.?f'__"-HtI ~.~

SHORT HISTORY
OF

PAPER IttONEY AND BA.NKING


TN THE

UNITED STATES,
INCLUDING AN ACCOUNT OF

PROVINCIAL AND CONTINENTAL PAPER MONEY.


TO WHlCII IS PREFIXED

AN INQUIRY
INTO THE

PRINCIPLES OF THE SYSTEM:,


WITn

CONSIDERATIONS OF ITS EFFECTS


ON

MORALS AND HAPPINESS.


THE WHOLE INTENDED AS

A PLAIN EXPOSITION OF THE WAY IN WnICn PAPER MONEY


AND MONEY CORPORATIONS, AFFECT THE INTERESTS ')F DIFFERENT PORTIONS
OF TIlE COMMUNITY.

BY WILLIAM M. GOUGE.

BJ\ilauelpuia :
PRINTED BY T. W. U8TICK.
AND FOR U.LE, BY GRIGG & ELLIOTT, NO. 8 ~ORTIt POURTH f'TREET, l"RIAlI m'NT,
NO. 19 NORTH THIRD ST., lIOGAN & THOMPSON, NO. 139t MARKET ST.

1833.

(Entered, according to the Act of Congress, in the year 1833,


GOUGE, in the Clerk's Office of the District Court
of the Eastern District of Pennsylvania.]

by WILLIAM M.

CONTENTS.
Preface, -

Page!!

PART I.
An Inquiry into the Principles of the American Banking
System, with considerations of its Effects on Morals and
Happiness.
CHAPTER I.
Importance of the Subject, 1
Of Real .Money, "
II.
7
Of Barter, Leger Entries, Bills of Ex"
III.
change and Promissory Notes,
- 18
IV.
Of Banks of Discount,

- 21
" V.
Of Banks of Circulation,
-23
"
VI.
General Effects of this System,
- 26
" VII.
Effects on Credit,
- 34
" VIII.
The same Subject continued,
- 37
IX.
Of Banks as Corporations,
- 41
X.
Ofthe Popular Arguments in favor of
"
Banking,
- 45
XI.
Of Restrictions on Banking Corporations, 50
XII.
Of the Essential Qualities of Bank Notes, 53
" XIII.
Of the' Convertibility' of Bank ~ledium, 58
"
Of the' Elasticity' of Bank :Medium, 62
XIV.
ls Paper Money cheaper than Specie 1 - 64
XV.
Of the Tax paid by the People to the
XVI.
Banks, - 67
Of the Formation of Bank Capitals, 70
XVII.
XVJII. Of Speculations in Bank Stock, and
of other Stock Jobbing, - 73
the Ways and Means by which
" XIX. Of Charters
are Obtained and Renewed, 78
Summary View of the Advantages
XX.
which the System gives to some
lUen over others, - 84
Of the Remote Consequences of tho
XXI.
System,
- 90
~ 94
XXII. Effects on l\foral Character,
"
- 97
XXIII. Effects on Happiness, XXIV. Of the Evils that would be Produced
by a. Sudden Dissolution of the
System,
- 101

iv

CONTENTS.
Pages.

CHAPTER XXV.
XXVI.
XXVII.
"
XXVIlI.
"
XXIX.
"

xxx.

"

XXXI.

Of the Proper Mode of Proceeding,


Of aNew Coinage of Gold,
Of the Fiscal Concerns of the Union,
Of Banking on Proper Principles,
Probable Consequences of the Continuance of the Present System,
Probable Effects of the Establishment
of a System of Sound Currency
and Sound Credit,
Summary, PART

- 103

- too

- III

- 117
- 123
- 128
- 135

n.

A Short History of Paper Money and Banking in the United States.


CHAFfER

"

"
"
"
"

"

"
"

"
"

"
"

"
"
"

"
"

"
"
"

"
"

I.

Of the Medium of Trade before the


Introduction of Paper Money, 11.
Of Provincial Paper l\:1oney,
III.
Of Continental Money,
IV.
Of the Bank of North America,
V.
Of the Old Bank of the United States,
VI.
Of Banking from 1790 to 1810-11,
VB.
Of Banking from 1810-11 to 1814-15,
VIII.
Of Banking from 1814-15 to 1815-16,
IX.
Of Banking from 1815-16 to 1816-17,
X.
Of Banking from 1816-17 to 1817-18,
XI.
Of Banking from 1817-18 to 1818-19,
XII.
Of Banking from 1818-19 to 1819-20,
XIII.
Of Banking from 1819-20 to 1820-21,
XIV.
Of Banking in the Western States, XV.
Of Banking in the Southwestern States,
XVI.
Of Banking in the Southern States, XVII. Of Banking in New England, .
XVIII. General View of Banking Operations
from 1814 to 1820-21,
XIX.
Of Banking from 1820-21 to 1825-26.
Of Banking from 1826-27 to 1828-29,
XX.
Additional Particulars in the History
XXI.
ofBan~ing from 1824 to 1829, XXII. Of Bankmg from 1828-29 to 1832-33.
XXIII. Extent of Banking Operations at different periods,
XXIV. General Reflections, Appendix.-Bank of North America,

3
7
2f)

31
38
42
55

64
73
85
93
101
121
127
133
139
151
165
174
187
196
202

219
227
237

PREFACE.
A brief exposition of the principles of Banking, wa$
all that the writer originally intended to give.
In the
first draft of the work, tr.e historical sketch was part of a
chapter. It has been extended to its present length, from
a belief that a tolerably full account of incidents in the
fIistory of American Banking would be acceptable to the
reader.
If additional illustrations of the nature of the system
were wanted, they might be derived from its history in
Great Britain. These, our Ii mits will not permit us to
introduce. We have, however, room for a sketch of the
changes of opinion that have taken place in that country,
in regard to paper money.
Mr. Joplin, in his History of the Currency Question,
after collating different passages in the treatiso on "The
Wealth of Nations," gives the following as a summary of
the views of Adam Smith.
"1. That he would prefer the circulation between consumers or what may be termed the consumptive circulation, to be metallic: but that he thought it a greater advantage for the circulation between dealer and dealer, to
be paper; admitting at the same time,
"2. That if Bankers were subjected to the obligation of
an immediate and unconditional payment of their notes in
coin on demand, as soon as presented, their trade might,
with safety to the public, be rendered in all other respects
perfectly free.
"3. That the amount of notes which the country reO'
quired was an amount equal to the sum of metallic money
which would circulate if there were no paper.
"4. That this amount could not be exceeded without
producing an immediate demand for gold to be sent abroad
previous to its passing into general circulation: by which,
of course, no derangement of prices, from excess of issues,

vi

PREFACE

could at any time be produced: the evils of over-issues


being confined to the Banks upon which the demand for
gold would arise.
"5. That besides this, if the Banks confined their loans
to real biBs of exchange and real transactions, they would
not be liable to any excess of issues whatever."
" With these views of the working of our paper system,
nothing," says Mr. Joplin, "could be more reasonable
than his (Smith's) conclusions as to its value. It was evidently one from which much good might be derived, and
no harm."
What Adam Smith had immediately in view, was the
Scotch 5ystem of Banking, which is carried on by unincorporated companies, each of the members of which is
responsible, in his whole persoJ;lal and real estate, for the
whole amount of debts due by the company: and the
English country system, which is carried on by private copartnerships, the members of which enjoy no special privileges or exemptions. His views afford little or no support to the American Banking System. To a small Dote
circulation he was a decided enemy.
His judgment
was, that country Banks should issue no notes of a less denomination than five pounds sterling, or twenty-four dollars Federal money: and that city Banks should issue no
notes of a less denomination than ten pounds sterling, or
forty-eight dollars Federal money. The whole tenor of
his book is in d~cided opposition to the practice of conferring peculiar privileges or ex~mptions, on any men, or any
bodies of men, and is, consequently, in decided opposition
to a fundamental principle of the American Banking System.
The principles of Smith were generally received till the
year 1797. The Bank of England then suspended specie
payments, and permission was given to it and to the country bankers, to issue notes of as Iowa denomination as one
pound. The country Banks were required to make payment
in notes of the Bank of England: while the Bank of England itself was placed under no restraint whatever but the
discretion of its directors.
This state of things necessarily drew the attention of
political economists to the subject; and, as Bank of England paper did not, for some years, undergo any sensible

PREFACE.

vii

depreciation, guineas began to be regarded as an unnecessary incumbrance. So strong a hold did this notion take
in the minds of men, that when Bank notes passed in the
market at a considerable discount, many writers affirmed
that paper had not fallen, but that gold had risen in
value.
Mr. Boyd, Lord King, and other Economists, showed the
incorrectness of this opinion, and ~Ir. Ricardo placed its
erroneousness in a strong point of view, in a pamphlet pub.
lished in the latter part of the year 1809, entitled, " The
high price of Bullion, a proof of the depreciation of Bank
notes." This work, .l\lr. Joplin avers" was the immediate
cause, and formed the ground-work of the Report of the
Bullion Committee."
" The principles of this Committee, supported by a host
of writers, became now," says the historian, " the received
opinions upon the subject, aild they were as follows:
" They entirely agreed with Smith in the general principle, that if Banks were obliged to pay their notes in specie on demand, the trade might, in all other respects, be
left perfectly free. They agreed with him, that the sum
of paper in circulation ought not to exceed the sum of me
tallic money that would be in circulation if there were no
paper: and they further agreed with him, that, if this
amount of paper was not exceeded, no great demand for
gold for exportation would ever arise: and that, if it
were exceeded, a demand would arise for exportation, adequate to the excess. But in every other respect they differed from him, and laid down principles equally new and
important.
" In the first place, they repudiated the principle that
Banks could not issue to p.xcess if they confined themselves
to advancing money on real bills of exchange. This principle they proved totally incorrect.
" In the next, they denied that an excess of issues would
be discovered by the merchant previously to the money's
entering into consumptive circulation, and be returned upon
the Banks for gold: though they admitted that an excess
of issues would produce a demand upon the Banks for
gold for exportation. But this, they proved, would take
place after the paper had been introduced into circulation,
and had depreciated the value both of itself and of the gold

yiii

PREFACE.

in which it was payable; that gold. by this operation, becoming less valuable in England than in other countries,
would be exported to ,other countries; that the excess of
paper would be returned upon the Banks in demand for it,
to be sent abroad until the excess was withdrawn; and
that the value of both paper and gold would then rise to
its previous level, and the exportation of gold cease. This
doctrine negatived the idea of Smith, that an excess of issues did not find its way into consumptive circulation. It
was contended, on the contrary, that prices must be raised
above their proper level, before the exportation of gold
could be brought about.
" Thus, two important principles of Smith's which would
be very much calculated to affect his views as to the value
of a paper currency, were set aside: 1hst, that the Banks
had an easy rule by which to guard against excess;
and next, that if they did issue to excess, no derangement
of prices would be produced by it; that the injury would
be felt by themselves, and not by the public.
"To this derangement of prices, however, which according to their views must precede an importation of
gold, the Committee did not appear to attach much importance.
"In the third place, they contended, that the issues ofthe
Bank of England regulated those of the country Banks. This
theory was new, though appearing to be suggested and
borne out by experience."
When Mr. Joplin says that the principles of the Bullion Committee became the received opinions, we are to
understand thereby that they became the opinions of a
large part of the British nation. 'I'he Anti-Bullionists w~re
so closely wedded to their favorite theory, that neither f~~ts
nor reasonings could separate them from it. Such was
their influence, and such was the force of circumstances,
that, though it had been determined that specie paymentd
should be resumed one year after the close of the war, the
Government delayed, for four or five years, to take the necessary measures for effecting this object.
In May 1821, .he Bank of England regularly resumed
the payment of gold on demand.
In the twenty-four years in which inconvertible paper
was the circulating medium, many hundred millions had

PREFACE.

ix

been added to the national debt, and the ama.unt of private


debts had been swelled immensely. The paying in specie
of the interest of a national debt contracted in paper, and
the discharging of private contracts in a currency of enhanced value, necessarily produced much embarrassment.
No sooner, however, had the difficulties attendant on the
resumption of specie payments been surmounted, than the
Bank of England began to extend its issues. In 1824, it
reduced the rate of discount from 5 to 4 per cent., and as
the country Banks at the same time increased their circulation, such an appearance of prosperity was produced, as
was unexampled in the annals of the kingdom.
This lasted till September 1825. 'rhen, difficulties be.gan, and in December there was a convulsion which threatened all interests with destruction.
" Such a panic," says J.\rIr. Joplin, "occurring in a period of profound peace, after a good harvest, and traceable
to no other cause but defects in our system of Banking
and Currency, rendered it, of course, incumbent on the
ministers to bring forward measures to remedy, if possible,
the evils which had been produced, and also to prevent
the recurrence of such diasters in future."
One of the principal measures they recommended was,
the abolition of one and two pound notes; and, on this
occasion, they, according to the British author just quoted,
"adopted a mode of speaking of our currency different to
any that had..hitherto been adopted. When the withdrawal
of the small notes was enacted in 1819, all the arguments
were in favor of paper payable in gold. The Bullion Committee, whose views had been implicitly adopted, observed,
that .they fully agreed with Dr. Adam Smith, and all the
most able writers and statesmen of this country, in considering a paper circulation constantly convertible into specie as one of the greatest practical improvements which
can be made in the political and domestic economy of any
State, and that such convertibility was a complete check
against over issue.
" Nor had this doctrine ever been impugned by those
who differed from the Bullion Committee in other respects.
They, on the contrary, always contended, that paying in
cash would not merely prevent over-issues, but would prevent enough being issued. It was too great a check upon

PREFACE.

issues. But in explaining the principles thus laid down in


the letter to the Bank, the Ministers, now, for the first time,
gave up this doctrine."
Mr. Charles Grant stated, that "the great problem with
respect to currency, is to discover that check whereby the
evil we wish to avoid may be arrested before it takes place.
The principle should be preventive rather than corrective.
His honorable friend opposite (Mr. Smith) seemed to think,
that the convertibility of paper into gold would operate as
a sufficient check to arrest its progress; and in this opinion
he was certainly supported by high authorities, amongst
whom were some of the wisest men that composed the BulliOll Committee.
They all agreed upon the necessity of
the convertibility of paper into gold, in order to establish
8. sound currency. The science of currency (for it deserved
the name of a science) was every day acquiring additional
light; in fact, it was now in a state of experiment. It appeared to him that those who supported the Bullion Report
were led to rely too exclusively on this check, not merely
to correct the evil when it does take place, but to operate
as a preventive, by which to guard against the extension of
it beyond a certain point. There was no doubt of the
check; but it may be so tardy in its progr~ss as to produce
the evil itself: because, it is a check that operates not by
necessity, but by the discretion and judgment of those by
whom the paper is circulated.
" It was clear from what had occurred, that the check
provided by the convertibility of notes into gold, operated
so tardily, as to be inadequate to avert the evil, and it ought
to be the leading principle in every sound currency, to provide the means of arresting the evil before it arrives at its
height."
~~ord Liverpool took a similar view of the subject, and
the Chancellor of the Exchequer, for the first time, impugned the doctrine of the regulating power of the Bank
of England. He observed, "that by an investigation into
the different issues of different years, it would be found,
that the issues of the Bank of England had no relative connection with the issues of the country Banks, it happening
in severa) instances, that, when the Bank of England issues had increased, the country note issues had diminished,
and vice versa."

PREFACE.

xi

This was also maintained by Lord Liverpool, who joined


with the Chancellor of the Exchequer and with Mr.Huskisson, in descanting on the merits of a metallic medium.
The latter observed, that, " It was the natural course, that,
in such a fluctuating state of our currency, all classes of
society must, in their turn, be afflicted by it, and, therefore, the sooner we get rid of that fluctuation, and returned to a sound, and healthy, and permanent, circulating me-diuID, the better for the community at large. If they wished to prove the value of a steady and unchangeable currency, they had it in the history of France; that country
had been twice invaded by a foreign army, her capital had
been twice taken possession of, and she was obliged to pay
large sums to foreign countries; but they had a steady metallic currency, and however ~uch visitations might have
affected the great-however the extensive contractor might
have been injured or ruined, the body of the population remained unoppressed. The storm might have crushed the
forest tree, but it passed over without injuring the humble
reed. This was to be attributed to the permanent footing
upon which the currency of that country had been established."
In conformity with these views, an act was passed to prohibit, after the - - day of - - 1829, the issue of all notes
of a l~ss denomination than five pounds sterling. In 1828,
a vigorous effort was made to repeal the law, but it was
steadfastly and successfully resisted.
In a debate on the subject on the 3d of July, 1828, the
Duke of Wellington said, " The measure of 1826 was not
founded on any theory, but on experience which the few
last years had confirmed. That experience had proved the
fallacy of a theory which stated that a paper currency was
perfectly safe as long as it was convertible into gold and
silver. Experience during the three last years had proved
this theory not to be true. It had likewise proved another
theory not true-the theory that one pound notes and sovereigns could circulate together."
In the same debate Lord King remarked, that" those
persons who considered paper money as an excellent thing
to be established in a country, he was disposed to view
as heretics. He had no hesitation in saying that the su..
perstition attached to paper money was idolatrous in the

xii

PREFACE.

highest degree. He looked upon it as the most dangerous


heresy of all heresies."
The opinions of such men as Mr. Huskisson, Mr. Grant,
Lord King, Lord Liverpool, and the Duke of Wellington,
are, on such a subject as this, entitled to the respectful attention of every candid American. In their country, paper
money Banking has been known longer than in ours.
Every thing that can be said in favor of convertible paper,
has been said in the various publications that have issued
from the British pres~t These statesmen were familiar
with all the arguments usually adduced in support of the
system. They had ample opportunities of observing its
practical effects.
If, however, we are disposed to disregard the result of
their experienc~, let us examine the system for ourselves.
If paper money Banking requires only new restrictions
to prevent its producing evil, the nature and number of
those restrictions cannot be known, till we know all the
evils it has produced.
If, as some seem to think, the system is to be perpetual,
the effect it has on society, is a rational subject of inquiry.
Such an inquiry, if faithfully made, will prevent us from ascribing to other causes such evils as have their origin in
Banking, and thereby prevent us from increasing those evils
by applying improper remedies.

AN INQUIRY
INTO THE PRINCIPLES
OF THE

AMERICAN BANKING SYSTEM.

CHAPTER Y.

Importance of the SubJect.


In an address to the stockholders of the United States
Bank, at their meeting in 1828, l\lr. N. Biddle, the President of that institution, stated, that, of five hundred and
forty-four Banks in the United States, one hundred and
forty-four had been openly declared bankrupt, and about
fifty more had su~pended business.
Mr. Gallatin, in his "Considerations on the Currency
and Banking System," published in 1831, gives a list of
329 State Banks then in operation, having nominal capitals
of the amount of $108,301,898, which, added to the capital of the United States Bank, made the whole nominal
capital of these institutions, upwards of one hundred and
forty-three millions of dollars.
'rhese Banks issue notes which serve as substitutes for
coin.
They grant credits on their books, and transfer the amount
of credit from one merchant to another.
They receive money on deposit.
They buy and sell biHs of exchange.
They discount mercantile notes.
They buy and sell public stocks.
.All these are important functions, and if only one of
them be ill performed, the community must suff~r inconvenience.

IMPORTANCE OF THE SUBJECT.

The Banks are scattered through nearly all the States


and Territories which cornposp. our UnIOn; but they may
all be embraced in one view, inasmuch as they all substilute paper for specie, and credit for cash, and are all
endowed with privileges which individuals do not possess.
By their various operations, immediate and remote, they
must affect, for good or for evil, every individual in the
country. Banking is not a local, temporary, or occasional
cause. It is general and permanent. Like the atmosphere,
it presses every where. Its effects are felt alike in the
palace and the hovel.
To the customs of trade which Banking introduces, all
are obliged to conform. A man may, indeed, neither borrow money from the Banks, nor deposit money in their
vaults: but if he buys or sells it is with the medium which
they furnish, and in all bis contracts he must have reference to the standard of value which they establish. There
is no legal disability to carrying on conlmerce in the oldfashioned safe way: but the customs of Banking have introduced a practical disability. It is no longer possible
for the merchant to buy and sell for ready money only, or
for real money. He mllst give and take credit, and give
and take paper money, or give up business.
Bank paper is not a legal tender in the discharge of private debts: but it has become, in point of fact, the only
actual tender, and the sudden refusal of creditors to receive
it would put it out of the power of debtors to comply with
their engagements.
Credit, the great rival of cash, is completely controlled
by the Banks, and distributed by them as suits their discretion.
These institutions may contribute little to the production
of wealth; but they furnish the means to many for the acquisition of wealth; they appear to be the chief regulating
cause of the present distribution of wealth, and as such
are entitled to particular attention.
" In copying England" says Mr. Jefferson "we do not
seem to consider that like premises induce like consequences. The Bank mania is one of the most threatening of these imitations: it is raising up a monied aristocracy in our country which has already set the Government
at defiance, and although forced to yield a little on the first

IMPORTANCE OF THE SUBJECT.

essay of their strength, their principles are unyielded and


unyielding. They have taken deep root in the hearts of
that class from which our legislators are drawn, and the
sop to Cerberus, from fable has become history. Their
principles take hold of the good, their pelf of the bad, and
thus, those whom the Constitution has placed as guards to
its portals, are sophisticated or suborned from their duties.
That paper money has some advantages must be admitted:
but its abuses are also in\teterate ; and that it, by breaking
up the measure of value, makes a lottery of all private
property, cannot be denied. Shall we ever be able to put
a constitutional veto upon it 7"
"In most disquisitions upon the noxious tendency of
Banks," says another writer* "much stress has been laid
upon the injuries they have a power to inflict, by excessive
loans and consequent bankruptcy, and by creating and
circulating a permanent excess of currency. Could these
two evils be avoided, many believe that Banks would be
innoxious. I regret to differ. I am not of those who
imagine that Banks incorporated with a liberal capital, will
ever endanger their solvency by extending their loans; nor
of those who believe that Banks controlled by specie pay..
ment, can circulate a permanent excess of paper. And
yet, I think I can perceive a portentous power that they
exercise over commercial enterprize. 1 am of opinion
that they can circulate a temporary exeess of paper, which,
from time to time, finds a corrective, in a run upon the
Banks for specie; that this temporary excess is succeeded
by a temporary deficiency, one extreme invariably tending
to another; that the consequences of this alternate excess
and deficiency are, in the former case to impart an undue
excitement, and in the latter an undue depression to commercial enterprize; that the effect of the former is to create an unnatural facility in procuring money, and to enhance unnaturally the price of commodities; while that of
the latter is to produce an artificial scarcity, and to cheapen prices artificially; that the \'ictims of these vibrations
are the great body of merchants, whose capital and average deposits cannot always command discounts; that the
gainers are a few intelligent and shrewd capitalists, the
11

Letter to Mr. Gallatin, by Pllblicola. New York, 1815.

IMPORTAN'CE OF THE SUBJECT.

magnitude of whose deposits commands enormous discounts at all times, and who, being behind the curtain,
know when to buy and' when to sell. I am of opinion that
these vibrations inflict evils which close not with mercantile speculation; that they tend to unhinge and disorder
the regular routine of commerce; and introduce at onemo..
luent a spirit of wild and daring speculation, and at another,
a prostration of confidence, and stagnation of business:
that these feelings arc transferred from the counting-house
to the fire-side; that the visionary profits of one day stimulate extravagance, and the positive losses of another engender spleen, irritation, restlessness, a spirit of gambling
and domestic inquietude.
" I appeal to the commercial history of our country, during the last e-even years, and to the aching hearts of many
of my fellow-citizens, for the truth of these reflections.
" I wish not to be misunderatood. Let no one suppose
me so weak as to attribute every unfortunate speculation,
and every fluctuation in prices, to an undue management
or organization of our Banking Institutions. That would
be a folly, from the imputation of which I trust the preceding remarks will ,rescue me. ~rhere are commercial
fluctuations, and they are wholesome. 'I"lhey invigorate
enterprize, and their benefits are directly felt by all. There
are Banking fluctuations, and they are highly deleterious.
'fhey intoxicate enterprize, only to enfeeble it; and the
benefits are restricted to a few.
"This evil of Banking fluctuation, ends not with the
mercantile community. It extends to every thing that
commercial enterprize reaches. It injures the farmer and
the mechanic, in the precise ratio of the vacillations of
public feeling.
" 'rhe injuries which it has inflicted have been as universal as the insinuation of bank paper; and the peculiar
manner of its operation renders it doubly distressing. It
does not affect the wealthy man, because he can always
control discounts; but it f.ills with single and dreadful severity upon the industrioils' poor man, whose capital is not
sufficient to command permanent accommodations; upon the
inexperienced, who purchase knowledge by a sacrifice of
property, and upon the merchant whose skill and sagacity
Btre superior to his wealth."
'

ljIlI
..

IMPORTANCE OF THE SUBJECT.

Against a power so tremendous, what barrier has been


erected 1 Against a power which, at different periods, has
baffled the legislative wisdom of our revolutionary sages,
of the Governments of Europe, and of Great Britain; what
check have we imposed? THE INTEREST ACCOUNT OF
EACH BANK.
As well might Canute have controlled the
waves of the ocean with a breath."
"Of all aristocracies," said a Committee of the New
York Legislature, in 1818, "nOlle more completely enslave
a people than that of money; and in the opinion of your
committee, no system was ever better devised so perfectly
to ensla ve a community, as that of the present mode of conducting Banking establishments. Lil{e the Syren of the
fable, they entice to destroy. They hold the purse strings
of society; and by monopolizing the whole of the circulating medium of the country, they form a precarious standard, by which all property in the country, houses, lands,
debts and credits, personal and real estate of all descriptions, are valued; thus rendering the whole community dependent on them; proscribing every man who dares to expose their unlawful practices: if he happens to be out of
their reach, so as to require no favors from them, his friends
are made the victims. So no one dares complain.
" The commit tee, on taking a general view of our State,
and comparing those parts where Banks have been for some
time established, with those that have had none, are asto..
nished at the alarming disparity. They see, in the one case,
the desolations they have made in societies that were before prosperous and happy; the ruin they have brought on
an immense number of the most wealthy farmers, and
they and their families suddenly hurled from wealth and
independence into the abyss of ruin and despair.
" If the facts stated in the foregoing be true, and your
committee have no doubt they are, together with others
equally reprehensible and to be dreaded, such as that their
influence too frequently, nay, often already begins to assume a species of dictation altogether alarming, and unless
some judicious remedy is proviJed by legislative wisdom,
we shall soon witness attempts to control all selections to
offices in our counties, nay the elections to the very Legislature. Senators and members of Assembly will be indebted to the Banks for their seats in this Capitol, and thus

IMPORT.\.NCE OF THE SUBJECT.

the wise end of our civil institutions will be prostrated in


the dust of corporations of their own raising."
Not a few of those who have a personal interest in the
continuance of the system, acknowledge and deplore the
evils it produces. Indeed we have found no men more
sensible of those evils, than some of the officers of Banks.
They retain their offices on the same principle that they
would, if they lived in England, retain offices under a
Government they could not approve. To the established
system of a country, whether political or commercial, men
may deem it expedient, perhaps belie\-'e it necessary, to con..
form; but this need not prevent their discovering the necessity for reformation.
One of these gentlemen, Mr. John White, the Cashier
of the United States Branch Bank at Baltimore, makes the
following candid and correct statement, in a letter to the
late Secretary of the Treasury, under date ofFebruary 15th,
1830:
" Looking back to the peace, a short period, fresh in the
Inemory of every man, the wretched state of the currency
for the two succeeding years, cannot be overlooked; the
disaster~ of 1819, which seriously affected the circumstances, property, and industry of every district in the United States, will long be recollected. A sudden and pressing scarcity of money prevailed in the Spring of 1822; nuInerous and very extensive failures took place at New York,
Savannah, Charleston, and New Orleans, in 1825; there
was a great convulsion among Banks and other monied institutions in the State of New York in 1826; the scarcity
of money among traders in that State, and eastward, in the
Winter of 1827 and 1828, was distressing and alarming;
failures of Banks in Rhode Island and North Carolina, and
amongst the manufacturers of New England and this State,
characterize the last year; and intelligence is just received
of the refusal of some of the principal Banks of Georgia
to redeem their notes with specie-a lamentable and rapid
succession of evil and untoward events, prejudicial to the
progress of productive industry, and causing a baleful extension of embarrassment, insolvency, litigation, and dis..
honesty, alike subversive of social happiness and morals.
Every intelligent mind must express regret and astonishment, at the recurrence of these disasters in tranquil times,.

OF REAL MONEY.

and bountiful seasons, amongst an enlightened, industrious, and enterprizing people, comparatively free from taxation, unrestrained ln our pursuits, possessing abundance
of fertile lands, and valuable minerals, with capital and
capacity to improve, and an ardent disposition to avail ourselves of these great bounties.
"Calamities of an injurious and demoralizing nature,
occurring with singular frequency. amidst a profusion of
the elements of wealth, are well calculated to inspire and
enforce the conviction that there is something radically erroneous in our monetary system, were it not that the judgfnent hesitates to yield assent, when grave, enlightened,
and patriotic Senators, have deliberately announced to the
public, in a recent report, that our system of money is in
the main excellent, and that in most of its great principles,
no innovation can be made with advantage."
The "grave, enlightened, and patriotic Senators," to
whom Mr. 'Vhite alludes, are those who, with l\'1r. Smith,
of 1\fary]and, at their head, made a report, in the year
1830, in which they represented certain kinds of Bank
paper as being as good as gold, and even better. If their
opifJion is correct, it ought to be confirmed. If it is not
correct, its erroneousness ought to be exposed; for error
in such a subject as this, may be productIve of incalculable
mischief.

CHAPTER II.

Of Real l1'[oncy.
Paper money is the foundation of the American Banking System. But, as, without a knowledge of what is genuine, it is impossible to have a clear conception of what is
spurious, it will be necessary to give a statement of the
qualities and functions of real money.
Money is not, as was asserted by a late Secretary of the
Treasury, (Mr. I.) "merely the representative ofproperty."
l\loney of gold and silver is property-is wealth. A hundred dollars in silver can no more be considered as the
lepresentative of a hundred dollars' worth of flour, than a

OF REAL MONEY.

hundred dollars' worth of flour can be considered as the


representative of a hundred dollars' worth of iron. Each
is the equivalent of the other; but each is real wealthnot a mere symbol or representative.
But money is not, as is supposed by some others, superior in its nature to all other kinds of wealth. The precious metals do not differ essentially from other items of
wealth. This is distinctly seen when they are in the form
of bullion. Converting them into coin, does not change
their nature. It only adapts them to a particular use-fits
them for passing from hand to hand, without the trouble of
weighinlj and assaying each piece at each transfer. An increase of the stock of gold and silver in our country, is
very desirable; Lut it is for precisely the same reasons that
an increase of other kinds of \\ealth is desirable.
Some fancy that it is the authority of Government that
gives money its value. But the true value of money, as
measured by the amount of goods for which it will honestly
exchange, cannot be affected by edicts of Princes or acts
of Parliament. Monarchs and 1\'Iinisters may alter the
weight of coins, or lessen their purity; but they cannot
make a coin containing an half of an ounce of pure silver,
worth as much as a coin containing an ounce. The stamp
of the State is a mere certificate of the weight and fine..
ness of the piece~
Others suppose that the precious metals owe their value
entirely to their scarcity. But if gold and silver were not
useful in the arts, they would have no value in commerce.
'fheir utility is so great, that even if they were not the material of money, they would exchange for great quantities
of corn and other commodites. If they were as plentiful
as copper and tin, they would be more valuable than these
base metals; because they are applicable to more various
uses. The market value of the precious metals is, as that
of all other things, in the compound ratio of their utility
and of their scarcity. It does not depend on their
scarcity alone.
Money is, simply, that valuable by reference to which the
value of other things is estimated, and by the instrumentality of which the interchange of other things is effected.
There is nothing mystical in its nature; nor is it likely that its
character WQuld ever have been misunderstovd in the United

OF REAL MONEY.

States, if the avoirdupois ounce of silver had been made the


unit of reference, and if coins had been struck of the weight
of an ounce, and of aliquot partslof the ounce. Men would
then have hau as clear conceptions of the nature of the
transactions into which money enters, as they now have of
those in which iron is exchanged for wheat. 'rhey would
then have seen that there is no essential difference in these
transactions-that trade by barter, is exchanging wheat
for one meta], and that trade with money, is only exchanging wheat for another metal. It has been by taking for the
unit of reference a fractional part of the Troy ounce, which
is a weight with which the people are not famil iar, and by
giving to this unit the a.rbitrary name of "a dollar," that
the subject has been rendered obscure to many minus.
As whatever is extended may be made the standard of
length, in like manner, whatever is valuable may be made
the standard of value. Instead of sayulg, this tract of land ,
or this bale of cloth, is worth so many ounces, or so many
pieces of sih'er, men might say, it is \vorth so many horsed
or cows, or so many pounds of lead or of iron. The principle of valuation would be identical with that which is
adhered to in countries where only solid money is used.
But he who had a small article to sell, would find it difficult to calculate its exact value in the fractional parts of
a horse or a cow, and pounds of lead or of iron would
be a very inconvenient circulating medium.
Corn, cattle, iron, leather, cacoa, tobacco, and other
commodities, have all, in point of fact, been used as money,
in different ages and different countries; but they have
long ceased to be so used, by commercial nations, for reason:; similar to those which have induced men to choose
for their standard of length, some object less liable to variation than the foot of a Chancellor, or the fore arm of a
King.
1'he high estimatron in which the precious metals have
been held, in nearly all ages and all regions, is evidence that
they must possess something more than merely ideal value.
It is not from the mere vagaries of fancy, that they are
equally prized by the Laplander and the Siamese. It was
not from compliance with any preconceived theories of
philosophers or statesmen, that they were, for many thousand years) in all commercial countries, the exclusive cir-

10

OF REAL MONEY.

culating medium. Men chose gold and silver for the material for money, for reasons similar to those which induced
them to choose wool, flax, silk, and cotton, for materials for
clothing, and'stone, brick, and timber, for materials for
building. They found the precious metals had those specific qualities, which fitted them to be standards and measures of value, and to serve, when in the shape of coin, the
purposes of a circulating medium. rro this use they are
admirably adapted:
1. Because they are divisible into extremely minute
portions, and capable of re-union without any sensible los8
of weight or value; so that the quantity may be easily
apportioned to the value of the articles of purchase.*
2. They have a sameness of quality all over the world.
The difference between iron from different parts of our
own country and of Europe, is well known to all dealers
in that article. 'rhe copper of Siberia is superior to that
of Germany, while that of Sweden is better than that of
Siberia, and that of Sweden is surpassed by that of Japan.
But, one grain of pure gold is exactl y similar to another,
whether it comes from the mines of Europe or of America,
or from the sands of Africa. Time, weather, and damp,
have no power to alter the quality: the relative weight of
any specific portion, therefore, determines its relative quan
tity and value to every other portion; two grains of gold
are worth exactly twice as much as one.
3. Gold and silver, especially with the mixture of alloy
that they admit of, are hard enough to resist very considerable friction, and are therefore fitted for rapid circulation.
4. Their rarity and consequeut dearness are not so great,
that the quantity of gold or of silver, equivalent to the
generality of goods, is too minute for ordinary perception:
nor, on the other hand, are they so abundant and cheap,
as to make a large value amount to a great weight.
5. They are capable of receiving a stamp or impression,
certifying the weight of the piece, and the degree of its
purity.
6. They are liable to less variation than any other arti.
cle, from changes in the relations of supply and demand"
including the cost of production among the conditions of
supply.
See Say, Bool" Chap. xxi, Section 2.

OF REAL MONEY.

11

By the discovery of A merica, the supply from the mines


was increased tenfold, but as there was at the same time
an increase of demand, owing to the increase of other
kinds of wealth, the rise of prices from 1520 to 1620, was
only fourfold. An opinion prevailed about fifty years ago,
that the value of silver had been gradually declining from
the year 1620, but Adam Smith, who inquired carefully
into the facts, came to the conclusion that the opinion was
unfounded, and Jean Baptist Say. the celebrated French
economist, is of the belief that there has been hardly any
variation in the value of silver in the last two centuries.
During the eight years preceding 1819, the supply from
the mines is supposed to have fallen short one-half, owing
to the troubles in South America. Such a diminution in
the supply of any other article, would have made a great
alteration in its value; but the annual product of the mines
is so small in proporiion to the whole quantity of the precious metals in the market of the world, that it requires
very nice calculations to show that their value has been
affected by this falling short of the supply.
According to the estimate of Mr. Gallatin, the stock of
the precious metals on hand is between four and five thousand millions. From 1803 to 1809, when the mines are
believed to have been most productive, the annual supply
was fifty millions. In the last twenty years, it is said to
have been but twenty-seven millions. But when the annual supply was most abundant, it was only in the proportion
of one and a quarter per cent. tt) the stock on hand, and
when it was lowest it had fallen only to three-fifths of one
per cent. The ordinary supply of gold and silver does
not exc~ed one hundredth part of the stock on hand, while
the annual supply of agricultural products always exceeds,
and that of manufactures often equals, the stock on hand.
The demand for the precious metals may be measured
by the whole amount of other commodities in the market
of the world, and the whole amount of Jabor. In this,
but little variation can take place from year to year, or
even in a series of years. There may be a glut of corn,
cloth, cotton, or other merchandise. More of these articles may be produced than can be consumed, at a particular time or place: but there is never a glut of gold or of
silver. The demand for these metals is universal and

12

OF REAL MONEY.

incessant. We do, indeed, say that "money is scarce, or


lnoney is plenty," but what we Inean thereby is, that loanable capital is scarce or abundant. With the great body
of men, money, and the material of which it is composed,
are always scarce: and must continue scarce, as long as
they want those things which money can procure.
From the durability of silver, and its other physical properties, from the steadiness and universality of the demand
for it, and from the small proportion the annual supply
hears to the stock on hand, it appears to unite all the qualities that can reasonably be desired in a commercial standard of value.
If it is not, as has been asserted by some, "an absolutely perfect and altogether permanent standard of value,"
it, in this respect, resembles our standard measure of length.
Even a platina rod is affected by changes of temperature.
All things here below are in a state of mutat on. 1'he
very figure of our earth is changing; and an arc of the meridian will not, in the cycles of futurity, be of precisel y the
same length that it was when measured by the French
Academicians.
It is true, our standard of value is liable to be affected
by more causes than our standard of length. But we can
calculate the force of these causes, and construct tables
showing the effective power of money in exchanges in
different ages. Such tables have baen published by Sir
George Shackford, in the Philosophical Transactions, by
the Rev. Arthur Young, in one of his treatises, and by
Admiral Rainer, as an accompaniment of his valuable
charts of fluctuations in the price of corn. The difficulty of showing the effective power of money in remote periods, is not owing to any inherent defect in the material of
which it is composed: but owing to the chroniclers of ancient times not having recorded a sufficient number of
facts for the satisfaction of modern inquirers.
In solving problems in Political Economy, it is necessary sometimes to use labor as a measure of value, sometimes
corn, and sometimes other commodities. So, to measure
heights, we sometimes use the foot rule, sometimes the
barometer, and sometimes the theodolite. But as, w hatever instruments they may us.e, men find it convenient to
express their mensuration of height in feet and inches

OF REAL MONEY.

13

their fractional parts and multiples, SO, whatever measure


of value writers may adopt, they seldom find it convenient
to proceed far in their calculation, without reducing their
expressions of value into the common money of account.
In no way can a clear conception of the wealth of a
man in a distant time or place, be so easily acquired, as by
a comparison of his income in money with the money
price of labor and commodities at the same time and place.
Those who object to silv.er as an imperfect standard of
value, appear to have fixed their minds on our common
measures of length, and finding in them some qualities
which silver does not possess, have hastily concluded that,
as a standard of value, it is more imperfect than it really
is.
But, as value and length are essentially different,
we must expect to find the standard and measures of the
one essentially different from those of the other. The causes
of variation must also be different; and the extent of variation must be different. The analogy between the standards
and measures of different things, cannot be greater than the
analogy between the things themselves. Value and length
agree only in this-that each admits of increase and decrease by homogeneous degrees, whence it is that each is
mensurable by like quantities.
If the reader will not suffer his mind to dwell exclusivelyon measures- of length, but extend his thoughts to measures of duration, of heat, and of atmospheric pressure,
he will probably be convinced that the common measures
of value are not more defective than the common measures
of time, temperature, and gravity.
To talk of absolute value is as absurd as to talk of absolute distance. As the distance of the earth from th9
sun increases as it passes from its perihelion to its aphelion,
the distance from the sun to the earth must increase also.
As the value of other things falls, that of gold and silver rises. If the mercury in the thermometer did not rise
as the heat increases, we should not be able, by that instrument, to measure degrees of temperature. If the mer..
cury in the barometer did not fall, as we ascend mountains, we should not be able, by that instrument, to measure heights.
For an absolute standard of value, we should have to
find something, the cost of production of which should

14

OF REAL MONEY.

be the same at aU times, and in all places, and the demand


and supply of which should never vary in the smallest degree. It is impossible even to fancy such a thing. It
would be as reasonable to wish for a pendulum which
should beat seconds in all latitudes, and in all elevations.
1.'he effective power of money is much greater in some
countries, and some ages, than in others. But we do not
complain of our common measures of weight as imperfect,
because ponderous bodies weigh more when on a level
with the sea, than when on th~ tops of the highest mountains.
To object to the precious metals, on account of their
being affected by the cpsts of production, and by the relations of supply and demand, is to object to them on account of the very things that fit them for standards and
measures of value. If the causes of their value were not
similar to the causes of the value of other items of wealth,
and if they were not liable to be affected by the same
causes of variation, they could not serve as a material for
money. There must be some homogeneousness in the
measure and'the thing to be measured.
An ounce of pure silver is a quantity which never chan~
ges. We may make this our standard of value-our unit
of reference in estimating other things. It is our own
fault, if we aft'rwards vary this standard.
In many minds the notions of value and utility appear
to be confounded. But the two things are distinct, though
frequently conjoined. A fine lady and a merchant of the
society of Friends have very different views of the utility
of diamonds; but if the merchant has diamonds for sale,
the creed of his church does not induce him to value them
at less than the fine lady is able and willing to give. The
value of commodities is in proportion to their adaptation to
the wants and wishes of mankind, rational or irrational,
and to the facility or the diffieulty with which those wants
and wishes can be gratified.
With others, value and wealth appear to be synonymous
terms. But the various items that constitute wealth are
positive in their nature. They are all those things that
conduce to the gratification of human wants and desires,
and which may be estimated by reference to a given standard-all those things which may be bought and sold, or
estimated at a price. The word value is used to denote
certain relations among these items. It always implies

OF REAL MONEY.

15

comparison of two or more objects. In its strict sense, it


denotes the effective power of things in exchanges; uut it
is, without impropriety, sometimes used to designate that
property in things which makes them effective in exchanges, and sometimes to signify the judgment the mind forms
of different things, on a consideration of their effective
power in exchanges. All these meanings of the word are
closely connected, and grow out of one another.
Various views may be taken of value; but in whatever
light it may be regarded, we shall find gold and silver
money the most convenient instruments of valuation, though
certainly not the only ones it is expedient to employ. The
political economist, to determine the natural value of
things, may compute their cost of production in days' labor and capital; but he will find it very difficult to estimate accurately these elements of production, except by
the instrumentality of money. If he eannot bring his calculations into the common money of account, his labor
will be of very little use to the practical man, for the effective power of things in exchanges is always estimated in
this way, and it is the relation the natural value bears to
the market value, that induces the enterprizing to incur
the toil and expense of production.
In countries in which paper money is unknown, the
common standards and measures of value appear to approach as near theoretic perfection, as the common standards of weight, length, or capacity. The standard of
reference has no variation, except such as necessarily
arises from the nature of value. The measures are composed of the same material as the standard.
The calculations necessary to show the effective power
of money in different countries, and different ages, may
not unaptly be compared to those which show the length
of pendulums to beat seconds in different latitudes; or to
those which show the loss of weight ponderous bodies sustain on being carried to different elevations above the surface of the sea.
In all such countries, the people suffer no more practical inconvenienc~ from the want of any theoretic perfection philosophers may discover, or may fancy they discover, in the common measnres of value, than from similar
imperfections in the common measures of time and weight.

16

OF REAL MONEY.

Where metallic money is exclusively used, the value of


land, of labor, and of all commodities, great and small,
can be determined with great accuracy. If, in suc~ countries, the trade between different men is not always an in.
terchange of equivalents, the fault is not in the instrument
of valuation, but in those who use it.
If the labor of a man, for a day, or for a year, produces
more than is necessary for his immediate support, he can,
by exchanging the surplus product for gold or silver, secure
the means of supplying his wants in future days or years.
Time will not corrupt his treasure or lessen its value. If
he should not require it all for his personal wants, he may,
at the end of fifty years, endow his children with a portion.
The use of money renders it unnecessary for families to
keep on hand a large stock of provisions and other necessaries, and thus saves them from the risk of loss from
provisions spoiling, and from various accidents. Having
money, they may procure whatever else they want, in just
such proportions, and at just such times, as they want.
If business or duty calls a man to a distant country, he
finds in money the means of procuring comforts similar to
those be enjoys at home. The instrument by which he
procures all these advantages, is light of carriage, and is
unaffected by any climate into which he may travel.
As the value of silver has underg;one hardly any variation in the last two centuries, and probably will not undergo any great variation for a hundred years to come, a man
may, in solid money countries, enter into a contract to pay
a sum of money, ten, twenty, or thirty years hence, and
rest assured that more wealth will not be exacted from him
than he intends to give. In such countries, contracts can
be complied with in equity.
A3 the standard of value in most countries is the same,
the coins differing only in weight, purity, stamp, and denomination, the value of different articles in different countries at the same time, can be ascertained with sufficient
accuracy for each country to determine what articles it is
expedient to export and what to import.
Without money, the division of labor could never be
carried to any great extent, and the wealth of society would
be small. l\loney, by promotIng commerce, advances civilization.

OF REAL MONEY.

17

All these advantages are procured at a small cost, for


the product of the labor of a commercial nat.ion, for a few
weeks, will procure it enough of metallic medium for all the
purposes of domestic trade, and this medium will not require renewal for centuries.
If the sovereign power refrains from unnecessary alteration in the coinage, commerce is, in countries where metallic money is exclusively used, liable to derangement only from great natural or political causes. If the supply of
gold and silver from the mines is greatly increased, it does
not produce a great rise of local price, for the metals diffuse themselves over the whole commercial world. If any
country gets a large portion of these metals, manufactures
absorb a part, and the increase of money is only in proportion to the increase of trade. If the supply from the mines
is diminished, manufactures absorb less.
'ro the state of trade in different countries, the supply of
gold and silver money naturally adapts itself; and also to
the state of trade in each county and town, and to the condition of each individual. If any country, any county, any
town, or any individual wants money, it is for the same
reason that that country, that county, that town, or that
individual, wants corn, cloth, coaches, or other commodities.
If the laws regulating trade introduce a new state of
things, the supply of gold and silver soon conforms to the
new relations of supply and demand.
No prohibitions can prevent money's departing from those
countries where its amount is beyond what their trade and
industry require. No country can be deprived of its just
proportion of the precious metals, except by the use of
paper, or by such causes as ruin the commerce and industry of a nation. No obstacle, except spurious money, can
prevent the precious metals frOIn flowing into countries
where wealth is increasing.
No instance is on record of a nation's having arrived at
great wealth without the use of gold and silver money.
Nor is there, on the other hand, any instance of a nation's
endeavoring to supplant this natural money, by the use of
paper money, without involving itself in distress and embarrassment.

18

OF BARTER,

&c.

CHAPTER III.

Of Barter, Leger Entries, Bills of Exchange and P"Omissory Notes.


It is not necessary for carrying on business honestly, to
introduce gold or silver money into every transaction, After we have measured a scantling by a foot rule, we may
use that scantling to measure another, and that again to
measure a third. We can, after having measured several
scantlings in this way, make a tolerably correct estimate of
the length of others by the eye. In like manner, after the
value of given quantities of corn, cloth, and other commodities, has been ascertained by exchanging them for gold
or silver, the value of other parcels of the same commodities may be determined without the intervention of money. In commercial countries in which there is no paper
money, little trade is carried on by direct barter, not because it is difficult to make a correct barter estimate, but
because purchases and sales can be belter regulated in regard to time and quantity by other modes of business.
Hence the practice of leger entries, or running accounts.
The amount of transactions between two traders may be
,ery great, and yet, if, in all their dealings, they have strict
reference to the specie price of goods, the commerce may
throughout be an interchange of equivalent, though not an
ounce of gold or of silver may have passed from one merchant to the other.
By promissory notes, the use of real money is deferred,
and in some cases superseded. ] f A gives a promissory
note to B, and B gives it to C, in exchange for goods, and
C passes it to D, the use of money is in two cases superseded, and in one deferred.
Bills of exchange have, in some respects, a similar effect. A merchant at Paris sending goods to Alsace, and
wishing money for them, would be forced to wait till the
goods could be sold, and the money brought from Alsace,
if he could not procure a bill of ex~hange. In like manner, a manufacturer at Alsace, sendillg goods to the capital, would be forced to wait for payment till the money
could be brought from Paris. Here would be two sums of

OF BARTER,

&c.

19

nloney passing in opposite directions. Supposing the whole


trade of France carried on in this way, the amount of money continually on the road would be equal to the whole
amount of goods in passage. The amount of money to be
annually transferred from one country to another would
be equal to the whole amount of trade between different
countries, except when the business of importing and ex"
porting was carried on by the same merchant. By the use
of bills of exchange, the merchant receives the money for
which the manufacturer's goods were sold at Paris, and
the manufacturer receives the money for which the merchant's goods were sold at Alsace. In this way, it becomes
necessary to transfer from one part of a country to another, or from one country to another, such sums only as
are equivalent to the balances of trade.
Bills of exchange, where the practice is to pass them
from hand to hand, may serve as a local commercial medium, though not a very convenient one, since it is necessary
for the nice adjustment of transactions, to calculate the
difference of the interest on each transfer.
Each of these three kinds of mediums has its specific
uses; and each is, as an auxiliary of gold and silver money, productive of great benefit. A clear view of their
operations is necessary, for the distinction between the representative3 of private credit, and of bank credit, is as
important as the distinction between genuine money and
spurious.
Leger entries, promissory notes, and bills of exchange,
agree with money in being a medium by which valuables
are circulated. 'They differ from it in being evidences of
debt owing by one man to another-which money is not.
In a far more important particular do they differ from
nroney. They are mere commercial medium. They are
neither standards nor measures of value. The am"ounts
expressed in them are the estimations made of goods, by
reference to the article which law or custom has made the
standard of value. They may be conveniently distinguished as commercial medium, restricting the term circulating medium to money.
An increase of these three kinds of commercial medium may have the same effect on prices as an increase of
money. Where the spirit of speculation is excited, men,

20

OF BARTER,

&c.

after having exhausted their cash means, strain their credit. Cash and credit are then competitors in the market,
and raise prices on one another. In the year 1825, a year
of great speculation, the amount of bills of exchange, negotiated in England, was, according to the returns to Parliament, 600 millions sterling. Supposing one-eighth of
these in circulation at the same time, this branch of the
commercial medium of England amounted in that year to
75,000,000 pounds.
But the rise of prices produced by these occasional multiplications of the representatives of private credit, is always temporary. At the end of a given period the balance of the running account is demanded, and payment of
the promissory notes, and of the bills of exchange, is required in money. If they are paid, their effect on prices
ceases. The result is the same, if they are dishonored.
In 1826, the amount of bills of exchange negotiated in
England, was 400 millions. Supposing one-eighth part in
circulation at one time, this branch of the commercial medium of England amounted, in this year, to 50 millions,
and was one-third less than in the year preceding.
In countries where the money is of a sound character,
and the state of credit sound also, leger entries, bills of
exchange, and promissory notes, serve rather to keep prices on a level, than to cause them to fluctuate. In some
seasons of the year, as when crops are brought to market,
or cargoes arrive from foreign ports, there is naturally mor~
trade than in other seasons. By the use of private credit
payments are divided among the different months more
equally than would otherwise be practicable.
Thus, in whatever way trade is carried on, whether by
barter, running accounts, promissory notes, or bills of exchange, or money, one principle of valuation is adhered to
in countries having a sound money system. The cash
sales regulate the credit sales, and the cash prices regulate
the credit prices.
If the money of a countly is paper, whether issued by
the government, or by a corporation, the expressions of
value in the running accounts, promissory notes, and bills
of exchange, are according to the new standards and
measures of value.
Into the nature of these we shall inquire in other
chapters.

OF BANKS OF DISCOUNT.

21

CHAPTER IV.

Of Banks of Discount.
Let us suppose that all the Banks in the country were
destroyed, and that our circulating medium consisted exclusively of gold and silver coin. In such a state of affairs,
every merchant would keep about his person, or in his
house, his whole stock of money.
Let us next suppose an Office of Deposit, established in
anyone of our large towns. For the sake of security against
fire and robbers, the wealthy would here deposit whatever
money they did not require for immediate uses. All the
money employed in the wholesale traue would thus become
the deposit of the Bank. It might be drawn out a few
times, but as every large dealer would keep an account at
the Bank, the absurdity would soon become evident, of
drawing out the money by one man, that it might be deposited in the same place by his neighbor. The amount
would, therefore, be transferred from the credit of one merchant to that of another, and the Bank would become an
Office of Transfer as well as of Deposit. The only money
that would circulate, would be that employed in retail trade.
All wholesale transactions would be adjusted by checks on
the Bank, and transfers on its books.
The Bank having issued no paper, the only demand on
it would be for specie to send abroad. This demand would
be limited, for every merchant would make it a rule to
retain enough money in Bank for his domestic trade. It
would be only as the trade of the town fluctuated, that the
amount of money in the vaults of the Bank would fluctuate. We may suppose that it rose as high, sometimes, as
six millions, and sunk as low, sometimes, as four millions.
In a little time, t~e Bank would discover the lowest amount
to which its permanent deposits would be liable to be reduced: and it might lend nearly the whole of this amount
without mu~hriskofdiscovery. The money might, indeed,
be sent abroad by him to whom it was lent, but he by
whom it had been deposited would still have a credit at
the Bank, and as all the wholesale transactions of the town

22

OF BANKS OF DISCOUNT.

would be carried on by checks on the Bank, his credit on


the books of that institution would serve him the same
purposes as money. Retaining the SUIn of 500,000 dollars
to meetcontingencie~, the Bank might safely grant discounts
to the amount of 3,500,000, and thus realize a profit of
more than 200,000 dollars per annum, without lending a
cent of its own capital, and without issuing any paper.
It is worthy of note, that the Bank of Amsterdam acted
on this principle. lUillions of money, which the merchants
had deposited in its vaults, and for the safe-keeping of which,
and the transferring of \V hich from one account to another,
they paid a premium, were lent by the Bank to the India
Company, and to the Provinces of I-Iolland and West
Friesland. The fact was long kept secret; but was discovered when the French entered Amsterdam in 1794.
What was regarded as a shameful breach of confidence
in the Bank of Amsterdam, is, with our American Banks,
an avowed principle of action. They all lend the money
deposited with them for safe keeping, and it is in this way
that the Banks in the large cities make great part of their
profits. All the money required for wholesale transactions
is their permanent deposit. It may go out one day, but it
returns the next; and it may be transferred from one Bank
to another, but it is never long out of some of the Banks;
and for the same sum of money there are frequently two
creditors-one in favor of him by whom the money has
been deposited, and another in favor of him to whom it has
been lent.
These Bank credits have a very different effect from the
leger entries of private traders. Whoever sells on trust,
puts on his goods an additional price, equivalent to the interest for the time to which payment is deferred. Sellers
may persuade purchasers to the contrary, and, in some
cases, capital nlay be so plentiful that the amount of interest
on a small sum, for a short period, may be scarcely appreciable. In other cases, the increase of price is greater
than the amount of interest; as with fashionable tailors
and shoemakers, who are forced to charge insurance on
each item, and make the honest pay for themselves and
the dishonest also. Their business would not otherwise
yield the common profits of stock and the common wages
of labor.

OF BANKS OF CIRCULATION.

23

But Bank credits are in all cases equal to cash. The


Bank check goes as far as Bank notes, for Bank notes can
be obtained for it on demand.
Increase of Bank credits has the same effect on prices
as increase of Bank notes. lIe who has deposited money
ill the Bank, and he to whom it has been loaned, appear
as competitors in the market, and raise prices by bidding
against one another. It is the same sum of money with
which they are contending, and the seller of goods cun get
it from one only. But there are two credits for this money
in the Bank, and the credit is equivalent to cash, both to
him who has deposited the money, and him to whom it has
been lent.
Our American Banks of Discount must be distinguished
from Loan Offices, or institutions which lend no more than
the amount of their own capital. As some express it, the
business of the American Banks is "to lend credit."
These Banks must also be distinguished from the Bank
of Amsterdam, as it once was, and the Bank of Hamburg,
as it now is. Into those cities there was a great influx of
foreign coin, of various denominations, and much of it
clipped or worn. To save the trouble of ascertaining the
exact value of each parcel, by sorting it on every transaction, it was deposited in Bank, and credit granted to each
merchant for the amount he deposited, according to mint
valuation, a small sum being deducted for warehouse rent,
and a small fee charged on each transfer. These Banks
were mere offices of deposit and transfer-not of discount.
T'hey were very different from our American Banks.

CHAPTER V.

Of Banks of Circulation.
Our American Banks are not contented with the profits
derived from lending the money of depositors toother people.
As ~oon as the first instalmel1t of the capital is paid in,
the Bank commences issuing notes. To those who come
to borrow, it lends paper or coin. The paper being ex-

24

OF BANKS OF CIRCULATION.

changed for coin, serves, at least at the place where it is


issued, the same purposes as coin.
Every man desires money, because he can therewith
procure whatever else he desires. If paper can procure
for him the object of his desire as readily as gold and silver,
paper is as desirable to him as gold and silver. The Bank,
therefore, finds borrowers for all the coin it has to lend,
and all the paper it deems it safe to issue. This addition
of notes to the amount of metallic money previously in
circulation, raises first the price of some articles and then
of others. The borrower from the Bank having more money, either paper or coin, at command, can offer an additional price for the object of his desire, or perhap~ procure
some desirable object that was before unattainable. He
from whom the borrower has bought, having made a speedier
sale, or perhaps received a higher price than would otherwise have been pos~ible-he also has it in his power to
obtain some object of desire that was not before within his
reach. A third, a fourth, a fifth, a sixth, each in his turn,
derives a like advantage from this increase of circulating
medium. The rise of prices is confined for a time to store
goods, but it at length reaches real estate, and finally the
wages of labor. Industry is stimulated, and enterprize
encouraged. Speculation is excited, private credit is strained, and the representatives of private credit are multiplied.
Every body is active, and all branches of business appear
to be prosperous.
Nothing could be prettier than tbis, if prices could be
kept continually rising. But it iB, unfortunately, only while
the amount of Bank issues is actually increasing, or fpr a
short time after they have attained their maximum, that
society derives this benefit from paper money. So far it
bas the same effect as an increase of real money-as. an
increase of real wealth. But in due time it affects all articles
in nearly equal proportions: and men then discover that
for an object of desire for which they had formerly to give
one dollar, they have now to give one dollar twenty-five
cents, or one dollar fifty: and that it is not more easy to
get the one dollar and fifty cents to make the purchase
with, than it was formerly to get one dollar. The value of
land, labor, and commodities, as compared with one another'is the same as it was before. It is only the money price

OF BANKS OF CIROULATION.

that is enhanced. The effect this has on public prosperity


is much the same as that which would be produced by
changing accounts from pounds, shillings, and pence to
federal money. The sum total of dollars would exc~ed
that of pounds, but the articIe8 of the value of which they
would be the exponents, would be unaltered in number and
in quality.
It would be well if the issues of the Banks had no other
effect than that of apparently increasing the wealth of the
community, by raising the money valuation of all kinds of
property. But these institutions do not c0ntinue their issues
long, before they raise the price of some commodities above
the price they bear in foreign countries, added to the costs
of importation. In foreign countries the paper of the Banks
will not pass current. 'rhe holders of it, therefore, pre..
sent it for payment. The Banks finding their paper returned,
fear they will be drained of coin, and call upon their debtors
to repay what has been advanced to them. In two ways,
then, is the quantity of circulating medium diminished:
first, by the specie's bei ng exported: secondly ~ by the paper's being withdrawn from circulation.
Prices fall as
rapidly as they had before risen. The traders find that the
goods in their stores cannot be. disposed of, unless at a
loss. The different members of society had entered into
obligations proportionate to the amount of circulating medium in the days of Banking prosperity. '-rhe quantity of
circulating medium is diminished, and they have not the
means of discharging their obligations. '"rhe merchandise) the farms, the houses, for which they contracted debts,
may be still in their possession; but the product of the
farms will not bring, perhaps, half a3 much as will pay the
interest of the original purchase money; the houses will
not rent for as much as will pay the interest on the mortgages; and the store goods must, if sold at all, be sold below prime cost. Bills of exchange are dishonored, and
promisory notes protested. One man is unable to pay his
debts. His creditor depended on him for the means of
paying a third person to whom he is himself indebted.
The circle extends through society. Multitudes become
bankrupt, and a few successful sp~culators get possession
of the earnings and savings of many of their frugal and
industrious neighbors.

26

GENERAL EF}'EGTS OF THIS SYSTEM.

By the reduction of the amount of Bank medium) the


prices of things are" lowered, the importation of some kinds
of foreign goods is diminished, and specie is brought
back. Then the confidence of the Banks is renewed, and
they re-commence their issues of paper. Prices are raised
again, and speculation is excited anew. But prices soon
undergo another fall, and the temporary and artificial prosperity is followed by real and severe adversity.
"Such is the circle which a mixed currency is alway.
describing."

CHAPTER VI.

General Effects of this System.


The rise of prices that follows an expansion of Bank medium, and the fall that follows a contraction, do not affect
all descriptions of labor and commodities, at the same time,
in an equal degree. The usual effect of an increase of isBues, appears to be to raise still higher those articles which
are rising from some natural cause; and the effect of a
contraction, to sink still lower those which are falling from
some natural cause. As Malthus has obEerved, the tendency of paper money is in some instances to sink prices
to their lowest point, and raise them in others to their
highest. The natural value no longer regulates exchanges. We had melancholy proof of this effect of contraction in 1820, when, according to Mr. Niles' calculation,
the average price of flour throughout the country was only
two dollars and fifty cents a barrel. Of rise of prices produced by expansions of Bank issues, we had striking examples in 1825 and 1831.
Wages appear to be among the last things that are
raised by an increase of Bank medium. The working
man finds all the articles he uses in his family rising in price, while the money rate of his own wages remains unchanged. In the year 1831, which was a year of
great expansion, rents rose enormously in many parts of
the teWft, store goods advanced in price, and.such fresh
provisions as are sold in the market were higher than they

GENERAL EFFECTS OF THIS SYSTEM.

2'7

had been at any time since the resumption of specie payments; but the money rate of wages was hardly affected.
if wages are not the first to fall on a contraction of is!ues, it is because the effects of the contraction fall unequally on different kinds of labor. " Contractions" never
proceed far, without breaking up some productive establishments. Some men are thus deprived of employment:
they enter into competition with the workmen in other establishments, and finally reduce wages in the branches
of business not immediately affected by the contraction
of Bank issues.
Hence the complaint we sometimes hear of" all branches of trade being overdone." A great number of enterprizes, undertaken with a cheering prospect of success when
the Banks "make money plenty," corne to an unfortunate
conclusion when the Banks "make money scarce." As
one man is thrown out of employment, his effective demand for the product of his neighbor's labor is diminished,
and he, perhaps, becomes the competitor of his neighbor,
instead of his cu~tomer. The merchant is compelled to
offer his services as a clerk. The master mechanic becomes a journeyman. If a clerk is thrown out of employment, the shoemaker has one good customer less. If
twenty clerks are deprived of employment, the shoemaker
may find it necessary to dismiss one of his assistants.
If twenty shoemakers are without employment, the baker
rnay find his sales of bread materially diminished: and so
of all other trades.
If the real wants of the community, and not their ability tp pay, be considered, it will not, perhaps, be found
that anyone useful trade or profession has too marry mem*" This is not the first time this remark has been made. In the British Bullion Report, made in 1811, the following passage occurs: "The
wages of common country labor, the rate of which, it is well known,
adapts itself more slowly to the changes which happen in the value oC
money, than the price of any other species of labor or commodity."
Hutchison, in his History of Massachu~etts, vol. 2, page 401, makes
a remark which shows that the effect of paper money is, in this respect,
the same, whether it is issued by a Government or by a Bank.
H I recollect one advantage from paper money.
Upon the depreciation from time to time, the wages of seamen, and the rate at whicb
coasting vessels and otheIS were hired, did not Immediately rise in
proportion to the rise of silver, and exchange with London and other
parts of the world."

29
bers.

GENERAL EFFECTS OF THIS SYSTEM.

The number of educated physicians, for example,


is not too great for the population. But, not a few physicians remain without employment, while many persons~
from inability to pay for medical advice, suffer all the evils
of sickness. It cannot be said that we have too many
shoemakers, tailors, or cabinet-makers, while multitudes
are but indifferently provided with clothing and furniture.
But, in one sense, "all businesses" may be said to be "overdone," since all businesses are by this system rendered unprofitable to som(~ who arc engaged in them.
On the operationd of manufacturers, these contractions
and expansions are productive of most pernicious consequences. Expansions of Bank medium are always incitements to them to e.xtend their busines~. The paper need
not be put in circulation by direct loans to the manufacturers. Lending it to such as will buy their commodities
has the same effect. Having, by the increase of Bank medium, heen enabled to sell his goods at an advanced rate,
the manufacturer re-commences operations with new spirit.
So facile is production with modern machinery, that a
small rise of prices causes a great increase of cotton and
woollen goorls. The production of the articles for which
these fabrics are uhimately to be exchanged, cannot, unfortunately, be increased with equal facility,. Unfortunately, also, the Bank medium is soon contracted. There is
then a glut of manufactures, and a scarcity of money~
On the operations of the agriculturists, these expansions
and contractions operate more slowly, but not less perniciously. Of this we had a striking example in 1825, when
the speculations in cotton (speculations which can be distinctly traced to an extension of the paper system in Europe and America,) caused much corn to be uprooted that
cotton might be planted in its place. The consequence
was, a glut of cotton in the next year, and a scarcity of
corn, in some districts of the South.
But, increase of Bank medium has the most obvious effect on real estate, as that varies most slowly in value from
natural causes. Whenever the Banks make money plenty,
speculation in real estate is excited,. because men are very
desirous to possess that which will afford them a permanent
revenue. As the custom is to pay only part of the price
agreed upon, and give mortgages for the remainder, a

o-ENERAL EFFECTS OF THIS SYSTEM.

29

emall increase of Bank' issues produces a considerable rise


in the price of immoveable property. In Philadelphia
and some other large towns, it is the practice with many
not to give any nloney in the purchase of building lots, but
to contract to pay a specified sum annually by way of
ground rent. Thus, when the currency is plentiful, men
enter into obligations, binding themselves and their heirs
to pay perpetual annuities; which annuities, when the currency becomes scarce, sweep away' half or all their property.
.
A four story house on l\-larket street, the erection of
which cost $10,000 about the time of the last war, wa~
offered for sale some years afterwards for jive dollars. NobodJ would take it at this price, because the rent the house
would bring was not equal to the ground rent. A few furlongs higher up this street, several three story houses were
bought for a dollar apiece; and the purchaser did not get
for rent of houses and ground together, as much as he had,
a few years previous, bargained to receive for the ground
alone.
In the less commercial parts of the town, many mechanics took lots on ground rent, and invested their little savings in houses, which they hoped would be the property of
themselves and of their children after them. The Bank
issues were contracted, and these hard-working men lost
the net proceeds of many years of industry and economy.
Now, the owners of the ground meditated no injustice
towards thes'c mechanics. When they fixed the. rent of
the lots, they supposed they were asking no more than they
were worth in perp'Ctuity; and the mechanics supposed
they were agreeing to pay no more than they were worth.
Their value was correctly estimated, but in a debased currency. If the landlords had abated part of their demand,
when a fall of prices took place through the enhancement
of the currency, they would have acted on principles different from those which usually govern men of business.
For more than a century it had been the practice with
men of limited means to lease lots on perpetual ground
rent, erect houses thereon, and give mortgages for so much
of the cost of building as they could not defray without
borrowing. There was little risk in entering into these

obligations, as both the ground and the buildings rose id\

SO

GJi!NERAL EFFECTS OF TRIS s-rsnlf~

value with increase of capital and population. In each


succeeding year a portion of the debt was paid off, and the
mechanic had, at the end of no long period, the satisfaction of calling his house his own. The mechanics whose
melancholy fate we have recorded, were acting on a method which had been successfully pursued from the first
settlement of the country. Their only misfortune was, being ignorant of the principles of currency, and having
rulers as ignorant as themseI ves.
In all parts of the Union, except New EnglarHI, property
passed in the same nlanner from those who had an equitable to those who had only a legal claim to it. :Farms rose
in price from fifty to a hundred per cent., and sunk again
as rapidly as they had risen. Thousands were reduced to
poverty, and scores rose to wealth on the ruin of their
neighbors.
It may be said t.hat we are only describing the effects of
a suspension and a resumption of specie payments. To
this it is sufficient to reply, that occasional suspensions of
specie payments are necqsary incidents of the Banking
system. 'l'hose who fancy that the Bank of the United
States would be able to continue specie payments in time
of war, forget the fate of the more powerful Bank of Enggland. Twice in the midst of profound peace, has this
very Bank of the United States been on the verge of suspending specie payments; and the Bank of England itself
was, in 1825, saved from bankruptcy: only by the intervention of a Sunday, the discovery in the cellar of the Bank..
ing-house of 800,000 onp. pound 110tes, by putting which in
circulation again, the Bank c'oadcd its promises to pay, and
by an unexpected supply of gold from the continent.
Suspensions and resu:11ptions of specie payments only
make the effects of contraction and expansion more obvivious. The money of the country is paper money now, as
it was in 1815 and 1816. Its "convCltibility" fixes
limits on its expansion; but frequent contractions are
necessary to keep it H convertible," and these expansions
and contractions are followed by very pernicious consequences.
As in the case of all public evils, the system bears with
the most hardship on the poor. The rate of wages is, as
we have seen 1 the last thing that is affected by an expan-

GENERAL EFFECTS OF THIS SYSTEM.

at

sion; and one necessary consequence of a contraction is,


to deprive some men of employment. If a rich man cannot sell his merchandise to-day, he can sell it to morrow;
and if he cannot sell it for full price, he can sell it for halfprice. But labor is the poor man's only commodity. If he
cannot sell it to-day, it is lost to him forever.
The substantial capitalist is a frequent loser, though
sometimes a gainer, by thc'3e fluctuations. If his capital
is small, and his credit in proportion, it is with difficulty he
escapes from total ruin in tirnes of contraction.
The reckless speculator, who has no capital of his own,
but who operates extensively on the capital of other people, has much cause to be well pleased with this system.
If a loss is sustained by a fall of prices, the loss falls on
his creditors, for he has nothing to lose. If there is a gain,
through a rise of prices, the gain is all his own.
If the speculator is a Bank Director, or a favorite with
Bank Directors, happy is his lot. Is there a scarcity of
money? It aflects not him. l\Ioney is made more scarce
with other men, that it may be plenty in his pockets.
Whatever may be the condition of others, he is enabled to
meet his engagements, and to support his credit. lIe has
the means of purchasing the goods and real estate of distressed debtors at reduced prices, and of holding them till
prices rise again. A year seldom p~lsses over without an
opportunity of this kind occurring, and such opportunities
sometimes occur several times in the course of a single
year.
In the facility ,,"'itll which these speculators can obtain
loans in troublous times, they have another sonrce of profit.
In some seasons, they make more gain by discounting
notes out of doors, at 2, 3, and 4 per cent. a month, than
the Banks of a city acquire by their regular operations. A
" go-between" usually manages these transactions, and the
speculator, though generally sllspected, cannot be proved
to be a usurer: but instances have been known of Directors following unsuccessful applicants for " ~'enewals of accommodation" out of the Banking-house, and then d.iscounting their notes for an extortionate premium. In times
of "expansion," men are invited to receive" accommodations" from the Banks; and in time of" contraction" these
"accommodations" are made the instruments by which

they are fleeced of their property.

82

GENERAL.- BFFECTS OF THIS SYSTEM.

l\Iuch is said against lotteries, and they are certainly


great evils. But a lottery, if there is no fraud on the part
of the Managers, is perfect fairness when contrasted with
some of our commercial operations. Some must gain, and
some must lose, in every lottery: but if it is fairly conducted, the chances of loss and gain are equal to all adventurers. In the present great game of Banking, in
which the fortunes of the whole comlnunity are the stakes,
the very nature of the game gives great advantages to the
1vlanagers.
It is no reply to this to say, that many Bank Director!
are too high-minded to make an improper use of their opportunities for making money. Bank Directors are like
other men-some of them good, some of them bad. The
great majority of theIn are worthy of all respect as private
citizens: but even they must, if they are candid, admit
that the system gives great advantages to some members of
the community over others; and it is of the system that
we are treating.
Nor is this view of the subject altered by the fact that all
the favorites of Banks do not become men of great wealth.
They have great advantages in the great game of society,
but there is a bye-game among themselves, and one speculator wins from his fellow speculator what the latter had
gained from the people at large.
Besides this, they are affected, in common with other
men) by the various Banking processes which make business in general 80 uncertain as frequently to baffle all calculation. These affect all classes of society. These place
us all astride of the see-saw of fortune. Now we go up,
and now we go down. The fate of the frequenters of the
Palais Royal is hardly more uncertain.
These vicissitudes of fortune are most striking in the
eases of men of a. bold turn of mind, who commence life
without capital, and who, not satisfied with the gain acquired by a few years of successful speculation, continue
their operations till fortune turns against them. But the
regular merchant, the plodding mechanic, and the painstaking farmer, are not exempted from similar vicissitudes.
It is said, that, in one of the most commercial streets of
Philadelphia, there were, a few years ago, but three or
fOUf mercantile houses of twenty years standing, which

GENERAL EFFECTS OF THIS SYSTEM.

33

had not broken once or oftener, been compelled to ask for


an extension of credit, or been in some way seriously ernbarrassed. When we consider that the same causes are
now in operation, how many of our present commercial
houses may we hope will remain unembarrassed for twenty
years to come 7 No doubt many men will, in that period,
retire from business, with handsome estates: but of such
as shall continue operations for twenty years, how many
will escape the vicissitudes which the present system of
things entails on the community 1
We have become so accustomed to this system of breaking, that we begin to consider it a part of the system of
nature. But it was not so always. Previous to the revolutionary war, there were but three bankruptcies among
the large dealers in Philadelphia.*" A bankruptcy in the
olden time, spread as much gloom over a family as a death;
and if the bankruptcy was the result of misfortune, the
family had the sympathy of all their neighbors.
~rhere is reason to belie\'e, that in some periods of six
months, more bankruptcies have been recorded in Philadelphia and New York, than in IIamburg and Bremen in
twice that number of years: and that there are more insolvencies in the United States in one year, than happen
in IIolland in a whole century.
No natural causes exist to make trade more uncertain
in the United States than in France, Germany, and HoIland. The commerce of those countries is, in fact, exposed to shocks, from which ours is exempt, from the operations of hostile armies in and near their territories, and
from every change that happens in the political world immediately affecting their mercantile operations. But the
expansions of Bank medium lead our merchants to overtrading, and the contractions force them to make sacrifices
of their property: and as these expansions and contractions are as incessant, though not as regular, as the ebbing
and flowing of the sea, mallY kinds of business are with us
rendered more uncertain by this one cause, than they are
in some other countries by all natural and political causes
put together.
* They were those of Scott and M'Michael, Peter Baynton & Co.,
and of one other firm) the name of which is not recollected by our .informant.

34

EFFECTS ON CREDIT.

CHAPTER VI.

Effects on Credit.
I n a rising country, sound credit is of equal importance
with sound currency. Through its operation, the advantages of capital are more equally diffused than would otherwise be possible. The man who has more capital than he
wishes to employ in his own business, and the aged and
infirm who possess wealth, lend it to the young and active.
By these means, much capital is made productive, which
must otherwise have remained unproductive; and many
persons find employment who must otherwise have been
idle. The wealth of the nation is increased, and lenders
and borrowers are mutually benefitted. The former receive their just share of profits, in the shape of interest;
and the latter keep another share as a recompense for the
trouble of management.
To have a system of sound credit, nothing more is necessary than to have a sound money system, and to enforce
the faithful performance of honest contracts.
Tn the countries forming the present United States, credit
has never been perfectly sound. In an early period of our
colonial history, arbitrary alterations were made in the legal
valuation of the current coin.
Then came the paper
money of the Provincial Governments, and the Continental money of the Revolutionary Congress, together with
tender laws, supported by penal enactments.
Men of
property were careful in making loans, as they knew not
but that, between the time of lending and receiving back,
such alterations might be made in the currency, that they
would be paid in money of much less value than that which
they lent.
Notwithstanding this, as business was much less uncertain than it is now, men whose moral character was such
as to afford a guarantee that they would not take advantage
of unjust laws to injure their creditors, found little difficulty in borrowing. But moral character is no longer
security for the re-payment' of loans; for, the sudd~n vicissitudes of fortune, which are produced by the Banking system, make very great changes in the moral feelings of men.

ErJ'ECTS ON CREDIT.

35

Hany a one who has, while his affairs are prosperou~


every disposition to fulfil his engagement~, becomes very
careless about them, when he finds his affairs declining.
As industry and economy no longer insure success in
business, nothing short of real estate is regarded asade.
quate security for the re-payment of a loan. This Recurity
many men, in whose hands capital would be very productive, are unable to give. And \hus, while the rich are prevented from lending their funds in the manner which would
be most advantageous to themselves, not a few industriou8
and enterprizing persons are prevented from exerting their
faculties in the way which would be most beneficial both for
themselves and for the community. Some, from the impossibility of obtaining capital to work with, are like mechanics without tools-useless both t.o themselves and to
the nation.
This practice of lending on bond, to which Banking haa
nearly put an end, was, perhaps, more advantageous to the
country, than any other kind of lending. Men who have
real estate, could find means for employing their faculties
to advantage, even if they were not able to borrow on
lnortgage. They might till their farms, if their real estate
consisted of farms; or if it consisted of houses, they might,
by renting their houses, obtain capital enough to engage in
some active business. But men having no capital of their
own, and unable to borrow, must, unless employment is
afforded them by others, remain in absolute idleness.
It is now, indeed, possible for such men to borrow from
the Banks, if their indorsers please the Directors. But the
loans of the Banks are for 60 or 90 days, while months,
and even years, are required for bringing the enterprizes
of the farmer and the mechanic to successful compretion.
Short loans are useless to them. The Banks may, indeed,
renew the accommodation, but this depends on contingencies; and the curtailments in time of pressure are so ruinous, that a man acts very unwisely who borrows large sums
from the Banks, or who borrows them for a long period.
When Dr. Franklin arrived in this city, more than a
century ago, he was a poor and friendless journeyman
printer. The amount of loanable capital held by the Philadelphians was small. Yet, he had been here but a short
time, before his neighbors, without solicitation on his part,

~rFECTS

ON CREDIt.

offered to lend him money to establish him in business. A


thrifty young mechanic who should now attempt to borrow
500 or 1000 dollars, for a term of two or three years, on his
personal security, would be regarded with astenishment.
Yet this young mechanic has a capital in his facoltiel
which would entitle him to a loan of more than 500 dollars, if the state of credit were sound. If his labor yields
him six dollars a week, and his expenses of living are four,
he will have a surplus of 104 dollars at the end of the year.
This would pay the interest on upwards of 1700 dollars.
His chance of living, if he is twenty-one years old, is, according to the doctrine of life-insurances, at least thirty
years. After making every allowance for contingencies, a
loan of 500 dollars to such a young man, might be considered quite a prudent act, and such a loan might enable him
to double his weekly revenue. But the uncertainty of
business, and the instability of moral character which is
produced by uncertainty of business, are such, that capitalists deem the chances of re-payment not sufficient to
justify lending to young mechanics: and the embryo Doctor Franklins who are among them, are left to contend
with adversity, without assistance from their richer neighbors.
As there is no borrowing at present on personal security,
except from tho Danks, many persons suppose that if there
were no Banks, there would be no borrowing at all. But
Banks do not increase the amount of loanable capital in the
country. The loanable capital of each year, is the wealth
which its owners do not choose to employ in their own
business. All Banking can do, is, to tal~e this loanable
capital out of the hands of its owners, and place it under
the control of irresponsible corporations.
If those who have honestly paid their cent. per cent. for
Bank stock, could get their money back, and lend it on
bond, it would be more secure than it is at present. l\luch
of that money has been lent by the Banks to wild specula.
tors. It would be in safer hands, if lent to industrious
farmers and mechanics, and plain dealing merchants and
storekeepers. We mean, of course, if we had a sound
money system, and a sound credit system built thereon,
and that sound moral character whi<?h proceeds from a
aound money and sound credit system. At present, it is

EFFECTS ON CREDIT.

37

not prudent to lend on any security short of real estate.


Such is the precariousness of business, that men who do
not like to incur debts which they may be unable to pay,
are scrupulous about borrowing on bond, unless their persona! estates are so large as to cover all risk.

CHAPTER VII.

The same subject, continued.

It is a very pernicious kind of credit which Banking


substitutes for the kind of credit which would exist, if we
could escape the evils of government paper money, and of
unnecessary alterations in our coinage.
The lender and the borrower do not, under the present
system, meet each other face to face. The capital is
placed in the hands of irresponsible Boards of Directors,
who, in managing it, have regard to little but their own
personal interest and that of their favorites. Great facilities are thereby afforded to many men for borrowing, to
whom no man ought to lend. They are led by Bank loans
to engage in business for which they are not fitted by either
nature or education. The enterprizes fail, and the wealth
of the community is diminished in proportion as the amount
of capital thus employed is great or small.
Instances have occurred of men obtaining credit for an
immense amount, who were not entitled to credit for one
cent. They were neither skiiful, industrious, nor economical. They had no capital in their faculties; and none
in the form of real or personal estate; or, if they had, it
was previously loaded with debts of equal amount to its
whole value. On an investigation of the affairs of a petty
Bank in Buck's county, it was found that the President
was indebted to it, either individually, or as a co-partner
with other men, in the sum of $112,000, which was three
times the amount of the active capital of the Bank. In
the case of a Bank in Connecticut, the loans of which
were 1,900,000, no less a sum than 1,500,000 was lent to
two commercial firms, consisting of two persons each. In

38

EFFECTS ON CREDIT.

another instance, four gentlemen of Baltimore, who had


previously borrowed $1,957,700 from a certain Bank in
the regular way, borrowed an additional sum of $1,500,000
from the same Bank, without even asking the consent of
the proper officers. From a statement recently published,
it appears that, on the 9th of April, 1832, the whole
amount of notes- and bills discounted at the principal Bank
in Philadelphia, was $7,939,679 52; of which sum, more
than two-thirds wvs loaned to ninety persons. l'Iore than
$3,000,000 were in the hands of seventeen individuals,
and nearly one-seventeenth part in the hands of one person. Deducting from the total the bills of exchange,
the discounts of the Bank on that day, amounted to
$5,964,085 26; and nearly five millions and a half of this
amount were distributed as follows:
In loans of not less than $20,000, each to 72 persons, $-2,404,278
do.
50,000, do.
19
do.
1,274,~82
do.
100,000, do.
3
do.
341.729
do.
200,000, do.
4
do.
995,456
do.
400,000, do.
1
do.
417,766
$5,434,100

Leaving only $529,974 26, to be divided among the rest


of the community.
A small amount borrowed from a Bank, gives a man
great credit with the community. By paying down a
few thousand dollars and giving mortgages for the remainder of the purchase money, he may get real estate in possession of the value of fifty thousand dollars. lIe is then
regarded as a rich man by the multitude, who know of his
houses and lands, but know nothing of the mortgages.
They are willing to let him have any kind and any amount
of goods on credit. The second year he may be insolvent;
but his credit remains unimpaired, and he satisfies those
from whom he bought goods in the first year, by the proceeds of goods purchased on credit in the second year.
Every year the amount of debt he owes beyond what he
is able to pay, goes on increasing; but ten or twelve years
may elapse before his insolvency becomes apparent. In
the mean time he is living in splendor on the property of
other men.
This facility of credit leads many into extravagant modes

EFFECTS ON CREDIT.

39

of hving. What they have obtained by the sweat of their


brow, men know the value of, and are careful of. But
what they ohtain in a less laborious way, they expend more
freely. The easiness with which they can run into debt,
is to multitudes a great misfortune.
It is well if extravagant living is the only fault this facility of credit brings with it. When men accustomed to
splendor, have the property of others in possession, and
can secure an independent fortune by so simple an act as
a false oath in an insolvent's court, the temptation may
prove too strong to be resisted. When they break, the
ruin that follows spreads far and wide: for a system of
guaranteeing has grown out of our present mode of doing
business, through which every man's success in life is made
to depend quite as much on the good conduct of those
with whom he is connected, as on his own frugality and
industry. The Banks are secured by special assignments
in which the endorsers of notes ar~ made" preferred creditors," but all others with whom the bankrupt has had
commercial dealings, are injured. As every merchant depends in part on what is owing to him by others to pay his
own creditors, bankruptcies seldom occur singly. One
dishonest, or one simply unfortunate man, may break
twenty.
When credit has caused such a distribution of wealth
as renders that capital productive which would otherwise
be unproductive, and gives employment to those persons
who would otherwise be idle, or less profitably employed,
it effectuates all the good that it is in its nature capable of
accomplishing. Left to itself, it would regulate itselfwould reach this limit)" and seldom pass beyond it. Pushed
beyond this extent, it becomes pernicious; and it is pushed far beyond this extent, by our present ~ystem. There
is now little buying or selling, except on credit. Even the
trade of consumption is on credit. A pass book goes to
the grocer's; and the tailor and the shoemaker think themselves happy if their bills a-re paid at the end of the year.
The retail storekeeper (if he does not commence business without any capital of his own,) lends his capital to
his customers by selling to them on credit. This forces
him to borrow another capital from the wholesale merchant:
for, buying g00ds on credit, is the same as borrowing capi-

40

EFFECTS ON CREDIT.

tal-it is borrowing In the shape of goods instead of money,


and giving a note instead of a bond, and an additional price
instead of interest. The wholesale merchant, having lent
his capital to the retailer, is forced to borrow another capital from the Bank. The Bank, in its turn, borrows the
capital of its depositors, and of those who receive its notes.
In -.his way, the whole community becomes indebted-the
private families to the storekeepers, the storekeepers to the
merchants, the merchants to the Banks, and the Banks to
the community at large.
Nothing is gained by this forced extension of the credit
system. It does, indeed, increase the gambling trade of
speculation: and that kind of trade in which sheriffs, constables, and assignees, are the active agents. It also increases, in particular years, the trade of consumption: but
then it draws from the productive capital of the country,
and diminishes the trade of consumption in the following
years. The amount of bona fide trade for a series of years
depends on the amount of goods produced and to be exchanged. The aggregate of this trade would be much
increased through the habits of industry and economy
which a cash and sound credit system would introduce.
On a cash system, men with small capitals could do as
much business as they do at present. They would then
turn their capItal more frequently. By each act of trade,
they would get back their own capital. Now, when they
turn their capital once, they turn it. out of their own hands,
and. it remains out of their hands for a year or eighteen
months. In the interim they must employ themselves in
turning other people's capital, or give up business.
If an account should be rendered of the amount lost by
bad debts in the course of a year, some notion might be
formed of one of the evils of super-extended credit: for,
nine bad debts in ten may fairly be laid to the account
of, this system. 'fhe aggregate must be enormous, as from
600 to 800 persons annually taJee the benefit of the insolvent laws in Philadelphia alone, aJld numerous compromises
are made of which the the courts take no cognizance..

OF BANKS AS CORPORATIONS.

41

CHA.PTER IX.

Of Banks as Corporations.
Against corporations of every kind, the objection may
be brought, that whatever power is given to them, is so
much taken from either the Government or the people.
As the object of charters is to give to members of companies powers which they would not possess in their individual capacity, the very existence of monied corporations
is incompatible with equality of rights.
Corporations are unfavorable to the progress of national
wealth. As the Argus eyesofprivate interest do not watch
over their concerns, their affairs are much more carelessly
and much more expensively conducted than those of individuals. What would be the condition of the merchant
who should trust every thing to his clerks, or of the farmer
who should trust every thing to his laborers 1 Corporations
are obliged to trust every thing to stipendiaries, who are
oftentimes less trustworthy than the clerks of the merchant
or the laborers of the farmer.
Such are the inherent defects of corporations, that they
never can succeed, except when the laws or circumstances
give them a monopoly, or advantages partaking of the nature of a monopoly.
Sometimes they are protected by
direct inhibitions to indiviouals to engage in the same
business. Sometimes they are protected by an exemption
from liabilities to which individuals are subjected. Sometimes the extent of their capital or of their credit, gives
them a control of the market. They cannot, even then,
work as cheap as the individual trader, but they can afford
to throwaway enough money in the contest, to ruin the individual trader, and then they have the market to themselves.
If a poor man suffers aggression from a rich man, the
disproportion of power is such, that it may be difficult for
him to obtain tedress; but if a man is aggrieved by a corporation, he may have all its stockholders, all its clerks,
and all its proteges for parties against him. Corporations
are so powerful, as frequently t.o bid defiance to Government.
If a man is unjust, or an extortioner, society is, sooner

42

OF BANKS AS CORPORATIONS.

or later, relieved from the burden, by his death. But corporations never die.
What is worst of all, (if worse than what has already been
stated be possible,) is that want of moral feeling and responsibility which characterizes corporations. A celebrated
English writer expressed the truth, with some roughness,
but with great force, when he declared that "corporations
ha\'e neither bollies to be kicked, nor souls to be damned."
All these objections apply to our American Banks.
They are protected, in most of the States, by direct inhibitions on individuals engaging in the same business.
They are exempted from liabilities to which individuals
are subjected. If a poor man cannot pay his debts, his bed
is, in some of the States, taken from under him. I f that
wIll not satisfy his credltors, his body is imprisoned. The
shareholders in a Bank are entitled to all the gain they
can make by Banking operations; but if the undertaking
chances to be uI:successful, the ]oss falls on those who have
trusted them. They are responsible only for the amount
of stock they may have subscribed.
For the old standard of value, they substitute the new
standard of Bank credit. Would Government be willing
to trust to corporations the fixing of our standards and
measures of length, weight, and capacity7 Or are our
standards and measures of value of less importance than
our standards and measures of other things 1
'They coin money out of paper. What has always been
considered one of the most important prerogatives of Government, has been surrendered to the Banks.
In addition to their own funds, they have the whole of
the spare cash of the community to work upon.
The oredit of every business man depends on their nod.
They have it in their power to ruin any merchant to whom
they may become inimical.
We have laws against usury: but if it was the intention of
the Legislature to encourage usurious dealings, what more
efficient means could be devised than that of establishing
incorporated paper money Banks 1
Government extends the credit of these institutions, by
receiving their paper as an equivalent for specie, and exerts its whole power to protect and cherish them. WhOe
ever infringes any of the chartered privileges of the Banks,
is visited with the severest penalties.

OF BANKS AS CORPORATIONS.

43

Supposing Banking to be a thing good in itself, why


should Bankers be exempted from liabilities to which farmers, manufacturers, and merchants are subjected 7 It will
not surely be contended that Banking is more conducive
than agriculture, manufactures, and commerce, to the progress of natlonal wealth.
Supposing the subscribers to Banks to be substantial
capitalists, why should artificial power be conferred on them
by granting them a charter 7 Does not wealth of itself
confer sufficient advantages on the rich man 1 Why should
the competition among capitalists be diminished, by forming them into companies, and uniting their wealth in one
mass.
Supposing the subscribers to Banks to be speculators
without capital-what is there so praiseworthy in their dE}sign of growing rich without labor, that Government should
exert all its powers to favor the undertaking 7
Why should corporations have greater privileges than
simple co-partnerships 7
On what principle is it, that, in a professedly republican
Government, immunities are cOrlferred on individuals in a
collective capacity, that are refused to individuals in their
separate capacity 7
To test this question fairly, let us suppose that a proposition were made to confer on fourteen individuals in Philadelphia, and three or fQur hundred individuals in other parts
of the country, the exclusive privileges which three or four
bundred incorporated Banks now possess. How many citizens would be found who would not regard such a proposition
with horror. Yet privileges conferred on corporations are
more pernicious, because there is less moral feeling in the
Dl~nagement of their concerns.
As directors of a company men will sanction actions of which they would scorn to
he guilty in their private capacity. A crime which would
press heavily on the conscience of one man, becomes quite
endurable when divided among many.
We take much pride to ourselves for having abolished
entails, and justly, in so far as the principle is concerned:
but it seems to be lost sight of by many that entails can
prove effective only when the land is of limited extent, as
in Great Britain; or where the mass of the population are
serf8, as in Russia. In those districts of our country

44

OF BANKS AS CORPORATIONS.

where negro slal'ery prevails, entails, aided by laws of


primogeniture, would have kept estates in a few hands:
but in the Middle and Northern States, a hundred ways
would have been contrived for breaking the succession.
If direct attempts had proved unsuccessful, the land would
have been let on leases of 99 or 999 years, which would
have bee~ nearly the same in effect as disposing of them
in fee simple. The abundance of land prevents its being
monopolized. Supposing the whole extent of country, from
the Atlantic to the Pacific, and north of the 39th degree
of latitude, parcelled out among a few great Feudatories;
those Feudatories, in order to derive a revenue from their
domains, ""'ould be forced to lease them in a manner which
would give the tenants the whole usufruct of the terrene;
for, the quit rent would be only an annual payment, instead of a payment of the whole in advance.
But the floating capital of the country is limited in
amount. This, from the condition of things, may be monopolized. A small portion of the community have already,
through the agency of Banking operations, got possession
of a great part of this floating capital, and are now in a
fair way of getting possession of much of the remainder.
Fixed and floating capital must be united to produce income, but he who has certain possession of one of these
elements of revenue, will not long remain without the other.
The difference between England and the United States,
is simply this: in the former country, exclusive privileges
are conferred on individuals who are called Lords; in the
latter, exclusive privileges are conferred on corporations
which are called Banks. 'fhe effect on the people of
both countries is the same. In both the many live and
labor for the benefit of the few.

POPULAR ARGUMENT&

45

CHAPTER X.

Of the Popular Arguments in favor of Banking.


The objections to the American Banks are tripartite.
They are, first, such as arise from their substituting paper
money for metallic. Secondly, such as arise from their
introducing an unsound system of credit. And: thirdly,
such as arise from their nature as corporations. If the
reader will take a view of all the different operations of the
Banks, connecting them together in his mind as they are connected in fact, he will require no refutation of the popular
arguments in favor of the system. Nevertheless, it may not
be amiss, for the satisfaction of some, to consider these arguments in the form in which they are commonly presented.
" Banks make money plenty."
Nay, they make real money scarce. As Bank notes are
circulated, gold and silver are driven away. It is contrary
to the laws of nature that two booies ~hould fill the same
space at the same time: and no fact is better estab!ished
than that, where there are two hinds of currency authorized
by law or sanctioned by custom, that whieh has the least
value, will displace the other. If Banks at any time make
money more plentiful than it would be if only gold and
silver circulated, they diminish its value in increasing its
quantity. The valuation, or relative estimation of things
is thereby enhanced, but not an atom is added to the
wealth of the community.
" Bank..; diminish tile rate of interest."
So far is this from lJeing true, that the Banks tend to
increase the rate of interest, by collecting capital into large
masses, and diminishing the competition among money
lenders. They, also, by their various operations, immediate
and remote, give rise to a multitude of usurious transactions.
" Banks do much good by lending money to individuals."
But much less good than would be done, by the owners
of this money lending it themselves. Banks, as was observed in a previous chapter, do not increase the loanable
capital of the country, but only take it out of the hands
of its proprietors, and place it under the control of irresponsible Bank Directors.

4G

POPULAR ARGUMENTS.

" If there were no Bank paper, specie must o..f necessity


be frequently transported to and from distant parts of the
country, at great expense and great risk."
The trade between different parts of the country does
not consist of an interchange of Bank notes or of specie,
but of the products of the soil and the industry of the inhabitants. By private bills of exchange, the sums due to
one trader could be transferred to another; and it would be
necessary only occasionally to discharge balances in specie.
This is, in fact, the present custom of trade, Bank notes being
to only a limited extent, substitutes for bills of exchange.
" Banks diminish tlte rate (if exchange between different
parts of the country."
Then they do great evil. The rate of exchange is the
natural balance wheel of trade between different parts of
the country. Banks cannot interfere with this, without
doing harm. When they lessen the rate of exchange, they
remove a natural check on overtrading.
H Banks give greater security than individuals in buying and selling excltange."
If so, it is because the other operations of Banking have
rendered all kinds of business uncertain. In countries
where paper money is unknown, no more risk attends
dealings in exchange than other kinds of dealings.
"Such are tlte customs of trade in the United States,
that Banking seems necessary."
But the customs herein referred to have their origin in
Banking, and, as they are pernicious, ought to be abolished.
"All commercial countries have some systems of Banking."
And none have a worse system than the United States.
In all commercial countries, there are men who receive
money on deposit, lend money, and deal in exchanges; but
the system of Banking on paper money, is of modern origin. The cities of Greece, and Rome, and Egypt, and
ancient Asia, attained to wealth far greater than we can
boast of, without the aid of chartered Banks. In all countries in which paper money Banking, or paper money of
any kind, has been introduced, it has done much evil. Austria, Russia, Sweden, France, Denmark, Portugal, Brazil, and Buenos Ayres, all bear witness to this truth, as well

POPULAR ARGUMENTS.

47

as England and the United States. To these countries we


may add China, in which paper money was tried before
the commencement of our era, and, on experience of its ill
effects, abandoned.
" The various evils that are mentioned as flowing from
Banking, proceed, in faet,from abuses of it. Banking on
proper principles is.productive of great benefits."
\Ve willingly admit that Banking on proper principles
would be productive of great benefit8: but we deny that
Banking with paper money, or by corporations possessing
peculiar privileges, is Banking on proper principles.
" Paper is more convenient than specie in large payments."
Deduct from the total of large payments, all those that
are made on account of accommodations at Bank, and all
those made on account of the wild speculatiolls introduced
by Banking, and it will be found that so few large payments would remain to be made, that we should be able to
get through them all without difficulty. To count out a
sum in ten or twenty dollar gold pieces, would be as easy
as to count it out in ten or twenty dollar Bank notes. Before the establishment of a Bauk in l\'lontreal, guineas were
done up in rouleaus, and such was the confidence the
merchants had in one another, that the paper envelopes of
the guineas were seldom broken. \Ve mention this merely
to show that the effecting of large payments with metallic
money, would not be a work of so much difficulty as some
imagine. In cases where great despatch was required, the
silver or gold money mIght be weighed, as was done by the
Bank of England in 1825, when the demands for gold was
so crgent, that the tellers had not time to count the sovereigns they paid out.
If we wish to effect large payments with the least possible incon\Tenience, we must establish a single Office of Deposit and Transfer in each large town. This would save
the time which is now lost in running from Bank to Bank.
" Paper saves tlte wear and tear of coin."
The saving is too insignificant to be taken into a national
account, in a subject of so much importance as the soundness of the currency. l\'lr. Gallatin says that "the annual amount wanted to repair the loss occasioned by friction in gold and silver coin, cannot exceed, taking the

48

POPULAR ARGUMENTS.

highest computation, seventy thousand dollars a year in a


coinage of forty millions, and is probably much less." This
estimate has been formed by Mr. G., "from various opinions deduced from actual experiments."
Dr. Moore, the Director of the United States Mint, in a
report made to the President in 1826, computes the loss
on gold coins at two per cent. in fifty years, and on silver
coins at only one per cent.
Agreeably to the report made to the Senate by the Committee of which Mr. Sanford was chairman, half-dollars
and half-eagles will circulate for one hundred years, and
dollars and eagles for two hundred years, without being so
much worn or defaced as not to serve the purposes of a
circulating medium.
" Banks affm d the public a safe place for depositing
their funds."
Not always. One hundred and sixty ofthese safe depositories, have broken in the last twenty years, and one hundred and sixty more may break in the twenty years next
to come.
Again: all those who deposited money in the Banks in
the early part of 1814, received back their deposits in money of inferior value. What has happened once, may happen again.
The probability is, that ten times as much has heen lost
by depositing money in Banks, as would have been lost if
people had kept their money in their own houses.
, " Every man ought to be allowed to use his own credit."
Exactly so: and, therefore, we ought not to have incorporated Banks, which give credit to some, by taking it
from others. These institutions owe their credit to acts of
Assem hI y. I f their charters were taken from them, not
even their own stockholders would trust them. Every man
ought to be allowed to U8e his own credit; but he ought to
get that credit fairly, and use it properly.
" If there were no Banks, it would be easy to borrow
money on bond or mortgage, for long pe1~iods, but it would
not be possible to obtain discount of merchants' business
paper, whiclt has but ajew months to run."
Not so: If the corporate Banks of Philadelphia were
abolished, many private Banks would spring up in their
place. The owners of these private Banks would be men

POPULAR ARGUMENTS.

49

in whom the public could place confidence, tor they would


be responsible in ~he whole amount of their estates. They
would be men of great wealth, for it is in lending money
that men of large fortunes can employ their capitals with
most profit and convenience. The competition among
them would be such, that business notes would be discounted on more favorable terms than at present. They would
allow interest on such sums as their customers might leave
in their hands. For their own convenience, they would
establish a public Office of Transfer and Deposit, and pay
the greater part of the expenses of this institution.
The system of private Banking in England, has done
much evil, (though much less evil than the system of corporate Banking in the United States,) because the private
Banks of England have traded partly on paper money issued
by themselves, and partly on that issued by the Bank of
England.
In Scotland, where the regulating power- is in the unincorporated Banks, the system does less evil than in England,
although paper money is used in both countries.
Private Banking in Switzerland, Holland, France, Hamburg, and Bremen, does much good and no evil. Such a
system will we have in the United States, when paper money
shall be abolished. In every town in the United States, in
which there is trade enough to require it, private Bankers
will spring up, who will receive money on deposit, and pay
interest for t.he use of it: Lend money on interest: Buy
and sell bills of exchange: Attend to the collection of
debts, and in various ways facilitate business. Operating
on sufficient capital, these private Bankers will not ruin
their customers by violent" contractions." Neither win
they incite them to engage in improper enterprizes, by
sudden and great "expansions."
Our corporate Banks do no good to compensate for the
evils they occasion, by their continual alterations of the
measures of value, by the uncertainty they give to trade,
and by the advantages they confer on some men over others.
With private Banks, and public Offices of Transfer and
Deposit, we should have all that ii good in the present system,_ without the evil.

50

RESTRICTIONS ON BANKING CORPORATJONS.

CHAPTER XL

Of Rcst.it;tions on Banking Corporations.


The evils which are produced by paper money Banking,
are so great as necessarily to force themselves on the attention of those who are most deeply interested in the continuance of the system. 1'0 remedy these evils, they propose various restrictions on Banking corporations, or new
modes of conducting their business.
A common opinion is, that, if the Banks would not discount accommodation notes, and if they would confine
themselves to business paper of short dates, theIr operations
would not be injurious to the community.*' But, a little
reflection may convince us, that, by discounting business paper, as much Bank paper might be set afloat, as
by discounting accommodation notes. The same lot of
goods might be sold to a dozen persons, and each might
give a note, and each of these twelve notes might be discounted at Bank. The limit on Bank issues would be the
same as at present-that is, the demand for specie for
foreign trade. The anxiety of the Banks to extend their
issues would be in no way diminished. The inducement,
then, would be to huy and sell goods that notes might be
discounted at Bank. Now, it is to have notes discounted
at Bank, that goods may be bought and sold. The spirit
of speculation being excited by any cause, notes would flow
in for discount, and the Banks would, as at present, discount as many as they might deem prudent..
The severest legislative enactments could not confine
the Banks to discounting business paper of short dates, if
this paper did not afford full employment to all their" capi-:+ This opinioI! was sufficiently refuted by the Bullion Committee, so
long ago as 1811 j and the correctnel'.8 of their conclusion is confirmed
by those whu have had the best opportunities for observing the operations of the Banking system. "I consider the opinion entertained by
some," says Sir F. B., "that the Bank ought to regulate its issues by
the public demand, as dangerous in the extreme j because I know by
experience, that the demand Tor speculation can only be limited by want
of means." The general practice in England is to discount only bUSIness paper, but this does not prevent the recurrence of evils similar to
those we suffer in the U llited States.

RESTRICTIONS ON BANKING CORPORATIONS.

51

tal" and all their "credit." They would soon find gufficient reasons for "renewing" the business notes of some
of their customers, and those notes, thus renewed, would
become accommodation notes.
Except in the cases of applications from Directors, and
their fa vorites, the Banks now prefer business notes, because
these place their issues more immediately under their control. More than a certain amount they cannot lend on
accommodation paper, for they must keep so much capital
under command as is neces:'--lry to support their credit.
Their deposits would otherwise be withdrawn, and the circulation of their notes would cease. It does not appear
that these accommodation notes have any specially nlischievous effect on prices. 1'hey are permanent in amount,
or nearly so. The fluctuation ofprices appears to be occasioned by that part of Bank "capital" and of Bank
"credit," which is always varying in amount.
Limiting the amount of issues to double the amount of
capital, and the amount of loans to thrice the amount of
capital, is a favorite provision with legislators. But, Mr.
Gallatin says, "amongst more than three hundred Banks,
either now existing, or which have failed, and of which we
have returns, we have not found a single one, the loans of
which amounted, so long as specie payments were in force:
to three times, or the issues to twice, the amount ofcapital.
It is clear, that provisions applicable to such improbable
contingences, are purely nominal."
Compelling the Banks to give an annual statement of
their affairs, is also a favorite measure. But it is not easy
to compel them to give afaithful statement. The accounts
of the Banks that break look nearly as weIl on paper as
the accounts of the Banks that continue payments. They
who are acquainted with the secrets of Bank management,
say, little reliance is to be placed on these accounts.
Preventing the Banks from issuing notes of a less denomination than five doIlars, is a nleasure which is effective
so far as it goes. But it still leaves the Banks the power
to substitute paper for specie, and to carryon credit dealings to an extent which is very pernicious. In England,
where the issue of notes of a less denomination than one
pound sterling, or about four dollars and eighty cents, has,
for many years, been prohibited, the contractions and ex-

52

RESTRICTIONS ON BANKING CORPORATIONS.

panslons of the Bank have done so much evil, that it has


been found necessary to prohibit the emission of any notes
of a less denomination than five pounds sterling, or about
twenty-fourdolJars Federal currency. The Bank of France
issues no notes of a less denomination than 500 francs, equal
to about ninety-four dollars of our money, yet the Bank of
France is at times forced to make such sudden and great
curtailments, as inflict much evil on many of those who are
within the sphere of its influence. The manufacturers in
Alsace had doleful experience of this power of the Bank
in France, in 1825. The rn(jrchants of Paris, and throughout the kinidotD, felt it in 1819. In 1822, also, the. oontractions which tne Bank of France found it necessary to make,
produced much commercial embarrassment in many parts
of that country.
In the charter of the Bank of France, there is a provision that all profits above six per cent. shall be converted
into a reserved stock, on which reserved stock the Bank
may make dividends not exceeding five per cent. Such a
provision in the American Bank charters, would remove
many inducements to over-banking, and would make speculations in their stock less frequent.
In proportion as the personal responsibility of those concerned in Banking is increased, and in proportion as the
denomination of the notes they are permitted to issue, is
raised in amount, the system becomes less pernicious. But
no legislative enactments can afford an adequate reJIledy
for the evils which flow from incorporated paper money
Banks. The system is, to use the language of the lawyers,
malum per se-or a thing which is evil in its nature. The
"ery principle of its foundation is wrong. No immunities should, in a Republican Government, be granted to
any, save those which are common to all. To impart to
corporations a moral sense of right and wrong, is impossible. They may be made nominally responsible, but to
impose on them an effective responsibility is impracticable.
To a certain extent they obey the laws, and r,espect public opinion, but it is only so far as, and so long as, is necessary for making their business profitable. The interest
account of the Banks is, in point of fact, the only effective
check we have on the abuse of those powers which our
legislative bodies have conferred on them by charter.

ESSENTIAL QUALITIES OF BANK NOTES.

53

Such privileges as the Banks possess, ought neither to be


sold nor to be given away, by a republican legislature, to any
men or any body of men. A control over the whole of the
cash and the credit of the community, i~ a power as despotic in its nature as any possessed by the nobility of
Germany.
The regulation of the currency is one of the most important prerogatives of sovereignty. This prerogative is
now, in point of fact, surrend~red to the Banks. They
drive away what may be called the natural money of the
country, and substitute for it something which differs from
this natural money in both the nature of its value, and the
causes of its value. A quantity of this money may be put
afloat, but, whatever may be the discretion of Directors of
Banks, and whatever may be the legal restrictions on corporations, it must fluctuate in quantity, and be affected in
value, by all the causes, natural and political, by which
credit is affected. It is flexible, vaciIJating, agitated by
every wind that blows. If any man can invent a method
by which the hardness and other properties of platina can
be imparted to lead, that man may hope to discover the
means by which Bank credit may be made as stable as
gold and silver medium.
To prove that the task is hopeless, we shall give an
analysis of the standard and measures of value introduced
by Banking.

CHAPTER XII.

Of the Essential qualities of Bank Notes.


Bank notes are considered by some as "representatives of
specie." But, for every silver dollar they have in their
vaults, some of the Banks have two paper dollars in circulation, some three, some five, some eight, and some thirteen. Bank notes cannot represent that which the Banks
have not, and which is not in the country. If Bank notes
can, in any sense, be considered representatives of specie,
the paper dollar of the same Bank sometimes represents
fifty cents, and sometimes forty cents: and the paper dol-

54

ESSENTIAL QUALITIES OF BANK NOTES.

lars of different Banks represent at the same time, thirtythree aJ)d a third cents, twelve and a half cents, ten cents,
and seven cents of the silver dollar.
Yet they are all
current, and all have the same effective power as silver in
exchanges.
Various other erroneous views are entertained of the nature of Bank notes, the consideration of which would be
tedious. Examining them one by one, would be merely
showing what Bank notes are not. Instead of doing this, it
will, it is presumed, be sufficient to show what Bank notes
really are.
Bank notes are simple evidences of debt due by the Banks.
This is their true character.
As mere evidences of debt, they differ not from the promissory notes of merchants. They are also, in common
with bills of exchange and business notes, a commercial
medium; but in some respects, there is an essential difference between Bank notes and the notes of luerchants.*
For their promissory notes, the merchants pay interest.
For the promissory notes of the Banks, the Banks receive
interest.
The promises to pay of the merchants are fulfilled, when
the notes arrive at maturity. Bank notes are never paid.t
Payment of them in the aggregate is never demanded~
"A bill of exchange drawn by an individual or individuals who
do not issue notes having the character of currency, appears to us to
be clearly distinguishtld from a Bank note, though it is a substitute, and
lessens the amount of currency which would otherwise be required.
A payment made in Bank notes is a discharge of the debt, the creditor
having no further recourse against the person from whom he has received it, unless the Bank had pleviuusly failed. The bill of exchange
does not discharge the debt, the person who receives it having recourse
against the drawer and every preceding endorser, in CH.se the drawer
should fail or refuse to pay. But the essential di8tinction is, that bills
of exchange are only promises to pay in currency: and that the failures
of the drawers, drawees, and endorsers, does not in the smallest degree,
affect the value of the currency itself: or impair that permanent standard of value by which the performance of all contracts is regulated."
(;allatin.

t "The essential difference between Banking and other commercial


busiuess is that merchants.rely for the fulfilment of their engagements
on their resources, and oo1"on the forbearance of their creditors, whilst
the Banks always rely, not only on their resources, but also on the probability that their creditors will not require payment of their demands."
Gallatin.

ESSENTIAL QUALITIES OF BANK NOTES.

55

because what could be got in payment, would, for most


purposes of domestic trade, serve no better purpose than
Bank notes themsel ves.
Bank notes are thus a kind of paper money. In the
countries where they are used, bills of exchange, the promissory notes of merchants, and balances of running ac-

counts, are paid in Bank notes, as they are paid in other


countries with metallic money.
The sales for prompt payment in Bank notes regulate
sales for deferred payment in Bank notes, as, in solid money
countries, cash transactions regulate credit transactions.
Like real money, Bank notes are instruments of valuation. The quantities they express are the exponents of the
effective power in exchanges of land, labor, and commodities.
An increase or decrease of Bank notes in the United
States, has the same effect on prices, that an increase of
solid money has on prices in Spain or Switzerland.
Increase the amount of Bank notes, and, other things
being tlle saUle; prices will rise.
Diminish the amount of Bank notes, and, other things
being tlte same, prices will fall.
In our first chapter, the several qualities of gold and
silver were enumerated, all which qualities an article must
possess in the same degree, to serve as well as the precious
Inetals the purposes of money. In proportion as the qualities of articles recede from those of gold and silver, they
are unfitted for these uses. By a comparison of the different qualities of Bank notes and coin, the reader may
acquire a clear conception of the difference between real
money and fictitious.
In susceptibility of receiving an impression, and in
comprising a great value (i. e. market value) in a small
space, Bank notes agree with coin. But in every thing else
they disagree. Of utility in the arts, the very attribute that
gives gold and silver their value in commerce, Bank notes
are utterly destitute. They are also destitute of the important qualities of unchangeableness of value, and of uniformity of value.
'Ve, however, because we have never changed our money of account, fancy that \ve have never changed our
standard of value. We call a Bank dollar by the same

56

ESSENTIAL QUALITIES OF BANK NOTES.

name as a silver dollar, and then fancy there is no essential difference between them.
In our mensuration of other things which admit of increase or decrease by homogeneous degrees, we use instruments possessing the same physical properties as the
thing to be measured. The judgment the mind forms of
weight or length, is regulated by a material standard. The
judgment the mind forms of value, is regulated by an ideal
standard; for Bank credit is something altogether intangible.
In solid money countries, in all sales of goods for cash,
the products of labor are exchanged for the products of
labor. The product of the miner's labor, is made the instrument for circulating the products of the farmer's and
of the manufacturer's labor. The transactions are removed but one step from simple barter, and do not differ from
it in its essential principle. The exchanges on both sides
are of articles possessing inherent value-articles in the
production of which labor has been bestowed, and articles
which possess the physical qualities which adapt them to
the satisfaction of human wants and desires. We receive
commodities from one another, and give in return some
uncertain representatives of credit, and fancy that trade is
conducted with us on the same principles as it is in those
countries where paper money is unknown. We pass from
hand to hand certain promises to pay, and call that making payment.
The relations in the supply and demand of the precious
metals are so slow in changing, that hardly any perceptible variation in the value of silver has, according to some
able authors, taken place in the last two centuries. But
the suppl y of Bank notes may vary several per cent. in different periods of the same year, and twenty or thirty per
cent. in three or four years. Thence come great rises and
falls ot price: but we have only an imperfect apprehension
of the cause, for our intangible standard of value never
changes its name, how great soever may be the extent in
which it is contracted or expanded.
It is folly to say that the money of the country is not
paper money. In Virginia, Pennsylvania, and Maryland,
payments of a less amount than five dollars are made in
real money: bu t in the other States, dollar notes circulate,

ESSENTIAL QUALITIES OF BANK NOTES.

57

so that payments in specie are made for only fractional


parts of the dollar. In North Carolina, South Carolina,
and some other parts of the Union, notes for 25 cents, 122cents, and even 6:1 cents, are current. There even small
silver change is a rarity. *
Of large payments, nine hundred and ninety-nine in a
thousand are made with paper. Of small payments, ninety-nine in a hundred. The currency of the country is,
we repeat it, essentially a paper currency. The sprinkling
of silver has only the effect of keeping up the reputation
of the paper. This paper varies In amount, from day to
day, from month to month, and from year to year. Every
thing that affects the spirit of enterprize, affect scorn mercial credit, and through that, Bank credit.
1-'he importance of adjusting measures of value with the
greatest exactness, is enforced by all who have written on
the subject. An order has recently been issued to re-coin
the whole of the silver money of France, amounting to not
less than eighty millions of dollars, on account of its having been discovered that the mode of assay by cupellation,
indicates but 1000 grains of pure silver in a mass containing 1004 grains. 'rhe difference between the legal and
the practical standard, is less than a half of one per cent. ;
yet this difference has been deAmed important enough to
lnake necessary a re-coinage of the whole of the silver
llloney of the country. Our own statesmen bear a silent
testimony to the truth of this doctrine, by their attempts to
* It is observed by l\fr. 'Vhite, Cashier of the United States Branch
Bank at Baltimore, in a letter to the Secretary of the Treasury, under
date of Feb. 30th, 1830: "Congless fixed the relative value of gold at
15 for 1 of silver; and under the natu ral presu m ption that gold and
silver coin would compose a portion of the general circulating medium,
it has also been enacted, that a tender of either of those metals should
be the only legal mode of discharging obligations. In practice, however,
and in fact, our currency consists altogether of paper. In this State,
(Maryland,) and in PelHlsylvania, Virginia, and perhaps some others,
the fractional parts of a dollar circulate in sufficient"quantity to purchase
with coin, marketing, or other low priced necessaries; but in the Caroliuas, Georgia, and all that great district eastward of Pennsylvania,
composing the States most distinguished for commerce and manufactures, and for wealth, there is no transfer of the value of the established
unit that is not effected by paper. This Bank paper is sustained by
public confidence on a specie basis~ considered sufficient to liquidate
balances accruing among the several States, and to supply the demands for foreign commerce. 1I

58

CONVERTIBILITY OF BANK MEDIUM.

determine the ratio of gold and f'ilver, carrying out their


calculations in some tables to the five hundredth thousandth
part of a grain.
Such is the care that Governments (our own among others) take in fixing metallic standards and measures of value.
If by any accident ~ dollar coined at our mint should contain but 369 grains of pure SlIver instead of 3711, it would
not be put in circulation. The nicest chemical and mechanical operations are resorted to that the different pieces
may have an exact uniformity. But, having done this, our
next care is to drive metallic measures of value from the
country, and substitute those of the most uncertain nature
possible.

CHAPTER XIII.

Of the "Convertibility" of Bank Medium.


Many who are inimical to paper money in every other
form, are friendly to the use of Bank paper, because it is,
they say, equal to specie, inasmuch as specie can be obtained fo( it at the will of the holder.
But what. does this" convertibility" amount to 7 Though
we have between three and four hundred Banks, we have
not yet one at every man's door; and, if we had, every
man would, in the course of business, be compelled to receive the paper of distant Banks. A man tnay prefer silver,
and yet not choose to walk even half a mile, to have his
note changed.
Those whose money dealings are most extensive, like
not to offend the Banks by too frequent calls on them for
specie. It might lead to a curtailment of their accommodation. They have as deep an interest as the stockholders
and the directors in keeping the notes in circulation.*
"* In a debate in Parliament in July 1828, Lord King said, that "as
for payment in gold, he knew t:tr.?re was an esprit de corps among the
Bankers, and people who wished to ~et accommodations from them
would find it no easy thing to obtain gold. The Banker would inquire
if the individual was in the habit of asking for gold, aud if so, accommodations would be withheld. Paying in gold was not, therefore, that
check to over-issues which some people imagined."

CONVERTIBILITY OF BANK MEDIUM.

59

In addition to this, it must be remembered, that Bank


paper is " convertible" into only one of those species which
should, according to law and constitution, be the money of
the United States. An ine-orrect valuation of gold at the
Mint, and paper money together, have driven this precious

metal from the country.

Bank paper is "convertible" in-

to silver only, which is inconvenient for large payments,


and for transportation to distant places in large amounts.
From this combination of causes, not more than onetwentieth of the paper is actually "sonvertible" at any
one time, and herein consists the safety of the Banks. An
attempt to convert but one half of the Bank medium, into
specie, would, though several months were allowed for the
operation, break all the Banks in the country.
Now, can such a "convertibility" make Bank notes
"equal" to specie? We mean equal to specie as money,
in its three functions of a circulating medium, and of a
standard and measure of value. We know the two articles
are equal in the market, but the question is, if they ought
to be so.
H Convertibility," so far from being au assurance of the
soundness of Bank notes as money, is not even an assurance, for three days together, of their soundness as bills of
credit. This is verified in the case of Banks whose paper
is in one week at par, and in the next at a discount of
fifty per cent.
When the contingencies on which convertibility depend, are taken into consideration, the risk appears so
great as of itself to outweigh all the arguments usually adduced in favor of Bank medium.
The practice of the Banks is to make provision for those
demands only whic_h it is probable will be made upon them,
which provision is seldom for more than one-fifth of the
amount of their actual engagements to pay on demand. It
is very easy for the Directors to make a mistake in their
estimate of probabilities. Events which they could not foresee may occur, and circumstances they cannot control. It
is not always easy to say where the line of safety should be
drawn; and the Directors are at all times tempted to transcend it, from the desire of making large dividends, and
raising the price of their stock in the market. Sudden
changes in the political and commercial world, may render

60

CONYERTIBILITY OF BANK MEDIUM.

the best conducted Banks unable to comply with their engagements, though they may have in store double the
amount of specie, which would, in other times, be necessary to support their credit.
On a certain day in 1819, there were but $80,000 between us and universal bankruptcy. 1.'his was the whole
amount of specie in the United States Bank at Philadelphia; and if that had been exhausted, a shock would have
been given to Bank credit, which would have caused a
general suspension of specie payments. In 1825, the condition of both England and the United States was hardly
less critical: The failure of two or three of our principal
Banks would cause a run upon all the others. They could
then comply with but a part of their engagements, and
their inability to satisfy the claims of the holders of their
notes and of depositors, would render the fulfilment of
other money contracts impossible. 'rhe credit which
Bank notes enjoy, has been called "suspicion lulled to
sleep." Events may awaken that suspicion.
Attempts are sometimes made to show the perfect security of the Banks, by contrasting the amount due by them
for notes in circulation and for deposites, with the amount
falling d.ue to them every sixty or ninety days on account
of mercantile paper discounted by them. But such calculations, even when they rest on indisputable data, prove
only the ultimllte solvency of a Bank. The amount due
by the Bank, on account of deposites and on account of
notes in circulation, may all be legally demanded in one
day; nay, in one hour. A greater amount may be owing
to the Bank, but it is payable at different times, and the
extremes of the term are sixty or ninety days apart. The
individuals who owe this money to the Bank may be rich
men: but their ability to pay, within the time agreed upon,
depends on the credit of Bank paper being maintained.
Let the depositors suddenly withdraw but one-half the
amount of specie ordinarily retained by the Banks, and
the credit of Bank note~ necessarily falls. A portion of
the debts due to the Banks may be paid in this depreciated
paper; but the Banks will not have the means of satisfying all their creditors. There being little specie in the
country, the collection of debts due by individuals to indi.

ESSEN'TIAL QUALITIES OF BANK NOTES.

61

viduals, would be suspended, (if Bank paper should suddenly lose its credit.)
..
..
..
..
..
..
The danger of such an event may not be very imminent; but it is sufficient to show that the stability of Bank
medium depends on contingencies which, as they cannot
always be foreseen, cannot always be guarded against.
What was called "a panic" in England, in 1825, broke
up a number of private Bankers who were perfectly sol.
vent, and was near proving destructive to the whole sye.
tern. If a suspension of specie payments should again
occur in this country, we should be left for a time without
a sufficient medium of exchanges. Too many men are
now aware of the nature of " inconvertible" Bank paper
for it to have general circulation. It would soon run the
course of the Continental money, and of the French assignats.
So long as Bank paper is Cl convertible," more than a
certain amount cannot be kept in circulation for a long
time without undergoing a sensible depreciation. Hence
U convertibility"
fixes a limit which Bank issues cannot
pass. By carefully watching one another, by attending to
the course of foreign exchanges, and by guarding against a
drain of specie, the Banks may, in ordinary times, maintain the" convertibility" of their paper; but the history of
Banking, both in England and the United States, since the
resumption of specie payments, shows that this "conver-
tibility" cannot give to Bank medium that stability which
is essential to a sound money system.
In the means by which "convertibility" is maintained,
we have an abundant source of evils. It is by.one Bank
pressing on another, and thereby forcing the debtor Bank
to press on its customers. When there is a foreign demand for specie, the" convertibility" of Bank medium is
Inaintained by a general pressure on the community.
Lord Liverpool, in a debate ill the British House of
Peers. in Feb. 1826, placed the doctrine of convertibility
in its true light. "The doctrine," he said, " maintained
by some noble lords, that nothing was better than a paper
circulation convertible into gold, is true to this extentthat if convertible into coin, the evil would cure itself,
whilst one not convertible would lead to nothing but ruin.
But how is the cure to be operated 1 By the downHill of

62

ELASTICITY OF BANK MEDIUM.

thousands and hundreds of thousands, and the convulsioQ


of all kinds of property. It is true that the evil carries its
own cure, but with such terrible consequences that the
cure is worse than the evil."

CHAPTER XIV.

Of the" Elasticity"

of Bank

Medium.

"The value of Bank medium," says a writer on thia


subject, " consists in its elasticity-in its power of alternate expansion and contraction to suit the wants of the
community. In truth, the merit of a Bank is nearly in
proportion to the flexibility of its means."
Most unfortunately for this argument, when the demand
for money is greatest, the Banks are compelled to contract
their issues. When the natural demand is least, they are
able to expand most. These" alternate contractions and
expansions" do 110t, therefore, " suit the wants of the community."
It is not a regard to " the wants of the community))
that regulates these "alternate expansions and contractions." It is a simple regard to their own profits that induces the Banks to expand their issues. In contractions,
the Banks have regard only to their own safety.
Every thing is not, indeed, left to the arbitrary discretion of the Directors. The natural and political causes
that affec~ trade, affect also their operations.
If wars, or other political operations, cause a flow of
specie to a particular point, the Banks are immediately
compelled to reduce their issues of paper. As a demand
on the Banks for a million of specie usually causes thenl
to reduce their accommodations to the amount of four millions, the pressure on the community is four times as great
as it would be if the foreign demand operated singly.
A rise in the price of our staples in foreign markets enables the Banks immediately to expand their issues. The
spirit of speculation is then excited, and the Banks supply
it with aliment. Hence, immediately after news of a rise
in the price of flour and cotton, in foreign markets, these
articles rise so high at home that they cannot be exported

ELASTICITY OF BAN K MEDIUM.

63

and sold at a profit abroad. The original holders gain


8Omp,thing by selling their stock to the speculators. The
price is raised on the domestic consumer; but very little
is added to the wealth of the nation, for the rise of price
at home cau"es little to be exported.
'fo enumerate all the caUties that affect expansions and
contractions of Bank issues, would be to enumerate all the
causes, immediate or remote, that affect trade, or affect the
confidence man has in man. Any thing that excites the
spirit of enterprize, has a tendency to increase the amount
of Bank issues. Whatcver damps the spirit of enterprize
or of speculation, h~:s a tendency to reduce the amount of
Bank issues. As the wild spirit of spcculation has in most
cases its origin, and in all its aliment, in Banking transactions, these variouS" causes operate in a circle. The
Banks, by expanding their issues, give aliment to the wild
spirit of speculation when it begins; and by their contractions, they aggravate the evils of the natural reaction.
One of the principal inducements for preferring the
precious metals as the material for money, is their want of
this very" elasticity" or "flexibility" which the writer
above quoted, declares is the principal excellence of Bank
medium. The mere desire of one man to have money,
and of another to gratify that desire that he may make a
profit by it himself, will not increase the supply of the precious metals. The spirit of wild speculation, therefore, in
solid money countries, wants that aliment which is so readily afforded to it in our own. The production of gold and
silver requires an expenditure of labor equal to that which
must be expended in the production of those articles which
gold and silver can procure. The supply is regulated by
natural causes which are as powerful as those which regulate the demand.
When an addition is made to the stock of gold and silver in a solid money country, it does not immediately
affect prices. It usually comes in the shape of bullion or
foreign coin. The importer considers whether a profit may
not be acquired by shipping it to some foreign country. If
he decides on retaining it, part of it is probably wrought
up into plate or jewellery. If he sends it to the mint, some
time must elapse before it can be converted into coin. A fter it is converted into coin, he may not choose to put it

64

IS PAPER MONEY CHEAP&R THAN SPECIE.

immediately into circulation. He may make it part of his


reserved stock, and wait for months, perhaps, for an oppo.rtunity for making advantageous purchases. If he can make
no advantageous purchases at home, he sends the money
abroad. Thus while there are powerful causes in operation throughout the commercial world, which make the
demand and supply of silver and gold to vary in only an
imperceptible degree, from year to year, there are particular causes operating, which make the supply in all solid
money countries, just equal to the effective demand, and
thereby truly "to suit the ,vants of the community."
In such countries, when the spirit of enterprize is awakened by fair prospects of a profitable trade, no sudden
plentifulness of money follows to convert the spirit of enterprize into a spirit of wild speculation.
If the enterprizes prove unsuccessful, the evil is not
aggravated by an artificial scarcity of money.
If wars, or other political operations, create a demand
for specie, the pressure is only equal to the foreign demand
-not fourfold, as with us.
If there is a rise abroad in the prices of the staples of exports of a solid money country, no sudden increase of currency raises prices so high as to make the exportation a losing business.
Such are the advantages of an "inflexible" and H nonelastic" money.

CHAPTER XV.

Is Paper Money Cheaper titan Specie?


The events of the last thirty years, have created a suspicion in most men's minds, that there is something not exactly right in our Banking system. Indeed, the very head
of the system, the President of the United States Bank,
seems at times half a sceptic as to its utility. He acknowledges that it is attended with great danger; but then
he says, "the substitution of credit for coin, enables the
nation to make its exchanges with less coin, and of course
~aves the expense of that coin."

IS pAPER MONEY CHEAPER THAN SPECIE.

(;5

Mr. Gallatin, who is now President of the National Bank


at New York, goes still farther. "The substitution of a
paper currency for the precious metals, does not," he says,
"appear to be attended with aJ~Y other substantial advantage
than cheapness."
Bank notes, it must be confessed, come very cheap to
those who issue them. But to those who receive them,
Bank notes come as dear as gold and silver. The farmer
must give as much of the product of his labor for a paper
dollar, as for a silver dollar.
It is alleged by some, that "Bank notes increase the
aggregate capital of the community, since they cause
silver, which produces nothing, to be exchanged abroad for
commodities useful in the arts, or for household consumption."
But it is not true that silver money produces nothing.
It is as productive as any other labor saving machine. Its
uses in commerce, are as great as those of the steam engine
in manufactures.
Neither is it true, that th~ aggregate capital of the
country is increased, when silver coin is displaced by Bank
notes. A mere exchange is made of one kind of capital
for another. The precious metals are exported, and laces,
wines, silkg', satins, and ostrich feathers, are received in
return. A nation that carries its consumption of foreign
luxuries so far, as to leave itself without a suitable medium
for domestic exchanges, may be compared to a mechanic
who barters the tools of his trade for the enjoyments of the
ale house. i'Jfoney is the tool o.f all trades.
But on the supposition most favorable to the friends of
the Banking system, what sum is gained by the nation by
the substitution of paper for specie?
According to the calculation of l\'lr. Gallatin, the currency of the country consisted, on the 1st of January, 1830,
of about ten millions of dollars in specie, in the hands of the
people, of 54 millions of Bank notes, and 55 millions of
Bank credits; making a total of 109 millions of Bank medium, for the support of which the Banks keep 2~~ millions
of specie dead in their vaults.
Now, supposing Bank medium to fall into disuse, these
22 miIJions of specie would be set free, and 87 millions
more would be required to bring up our currency to its

66

IS PAPER MONEY CHEAPER THAN SPECIE.

present amount. What is this, when compared with the


whole capital of the country, which is estimated by Mr.
Lee of Boston, at ten thousand millions of dollars, and by
two other able economists, at twelve thousand millions.
What is it, even when compared with the aggregate of incomes, which, according to Mr. Niles and Mr. E. Everett,
is one thousand millions a year 1
It should be recollected, that, on the supposition of something being gained by the nation, by the use of paper money, the saving is once for all, and the annual gain is no
more than the interest on the amount of medium. Now,
the interest on 87 millions, at six per cent., divided among
the individuals who constitute our nation, is about 40 cents
a piece!
Is it wise, for so trifling a gain, to derange all our monied
operations 1
But if the inquiry be pushed further, it will be found
that nothing is gained by the nation, (we do not say that nothing is gained by certain persons,) even on the supposition most favorable to the Banks.
For a specie medium, but one mint would be necessary.
1'0 maintain a paper medium, we have from 300 to 400
paper mints. 'he expenses of these mints press heavily
on the people. The expenses of the Bank of the United
States and its offices, are about 500,000 dollars a year.
According to Adam Smith, three million people, in the
countries now forming the U oited States, were governed,
a.nd well governed, before the Revolution, at an expense
not exceeding 350,000 dollars a year. J.
The labors of the American people for a few weeks
would purchase them a sufficiency of metallic medium,
which would not require renewal for a hundred years. To
support our paper medium, we are frequently obliged to
purchase specie abroad, at a disadvantage. As there is no
profit on paper money, except by keeping down the amount
of specie in the vaults of the Banks, the precious metals
are frequently exported and sold at a loss.
The cheapness or dearness of an instrument, is to be
estimated by the annual expense to which it puts us, in
addition to its original cost, and by the manner in which it
serves the uses intended. Bank medium is a machine
which requires continual watching, which is always getting

TAX PAID BY THE PF.OPLE TO THF. RANKS.

67

out of order, which requires frequent and expensive repairs, and which, after all, performs its work badly.
Men have passed from one extreme to the other. A hundred years ago, the chief feature in the commercial policy
of nations, was the amassing of gold and silver, as a kind
of wealth par excellence. Now, he is the wisest statesman,
who is most successful in driving the precious metals from
a country.
In their attempts "to economize specie," as they caIl
their absurd and nefarious policy, they seem to be forgetful
of economy in every thing else.
Correct measures of
value, it must be confessed, cost something. So, likewise,
do correct measures of weight and of capacity. A metallic
medium cannot be obtained without paying for it; but
whatever it may cost, it is well worth its cost. Our roads
and our canals, which are, like money, instruments for facilitating exchanges, cost immense sums. So, also, do our
~hips, and our manufacturing machinery.
Among labor saving machines, gold and silver coin are
entitled to the first place. In no way can a nation invest
a portion of its capital more profitably, than in a sound circulating m.edium. It will return its original cost a hundred fold. Without such a medium, it is impossible for
contracts to be complied with in equity, or for productive
rndustry to exert all its energies.

CHAPTER XVI.

Of the Tax paid by the People to the Banks.


The thirty-one chartered Banks of Pennsyhyunia had, in
November ]829, according to the statement of Mr. Gallatin, a nominal capital of $]2,032,000. One million three
hundred and ten thousand dollars of this amount was
invested in real estate, and 4,620,000 in stocks of various
descriptions, leaving the Banks 6,102,000 to employ in
discounting notes. From the $5,930,000, invested in
if Some corrections might be made in Mr. Gallatin's estimates, but
we take them as we find them, they being accurate enough for the
illustration of principles, which is our only object in introducing them.

68

TAX PAID BY THE PEOPLE TO THE BANKS.

stocks and real estate, it is to be presumed they derive as


much advantage as private persons derive from similar investments. With the remaining 6,102,000, they discount
notes to the amount of 17,526,000. On this amount they
draw interest at 6 4-10 per cent., for the usage of the
Banks is to charge 64 days' interest on loans for 63 days.
The revenue which private capitalists would derive froDl
lending $6,102,000 at the legal rate of six per cent., would
be $366,120 per annum. The revenue which the Banks
derive from the management of this amount, is 1,121,664
dollars.
If the Banks do not, by the use of a nominal capital of
$6,102,000, draw interest from the people on the sum of
17,526,000 dollars, their returns to the Legislature are deceptive. If they actually draw interest on this amount,
they draw from the people $755,544 per annum more than
would be drawn by private persons lending bona fide capital of the same amount as the nominal capital of the Banks.*'
Supposing the sums paid in each year, since the passage
of the Bank act of 1814, to equal that paid in 1829, the
total amount paid by the people in sixteen years, over and
above six per cent. on the loanahle capital of the Banks, is
$12,088,704. A direct tax of half the amount for the support of government, would have produced a rebellion.
The Bank of the United States had, on the 1st of November, 1829, a nominal capital of $34,996,270. Of this
amount, $11,717,071 were invested in public stock~, and
$3,876,404 in real estate, leaving it $19,402,795 of nominal capital for its proper business of accommodating borAlgebraic signs 'would, if they were generally understood, serve the
purposes of illustration as well as the most correct estimates.
-If It may, perhaps,
be argued, that the "surplus funds" of the
Banks ought to be added to their loanable capital. But, as :Mr. Gallatin has said, "it will easily be perceived, that what is called the surplus,
and sometimes the reserved or contingeut fund, is nothing more than
that which balances the account, or the difference between the debits
and credits of the Banks." The surplus funds of the Banks of Pennsylvania were, in November, 1829, according to 1\1r. G. ~s statement,
$1,142,000. If it be thought proper to add this amount to the loanable
capital, the estimate of the tax paid hy the people of Pennsylvania for
the support of their local Banks should be reduced from 755,544 to
687,024 dollars per annum. It is of little moment which mode of estimation is adopted. Either proves that the tax amount8 to hundreds of
thousands of dollars in each year.

TAX PAID BY THE PEOPLE TO THE BANKS.

69

rowers and dealers in bills of exchange. On this amount


of bona fide capital lent at six per cent., private persons
would draw a revenue of $1,164,167. But the Bank, with
this amount of nominal capital, discounts notes and bills of
exchange, to the amount of 40,017,445 dollars, from which
it derives an annual revenue of 82,561,114, or $1,396,947
more per annum than would be received by private capitalists. In this estimate, we do not include what is paid
to the Bank on the rate of exchange, though this must
amollnt to hundreds of thousands of dollars.
Of the tax paid by the people for the support of the local
Banks in other States than Pennsylvania, it is not so easy
to form an estimate. Mr. Gallatin gives a statement of
297 institutions having nominal capitals of the amount of
97,381,935 dollars, but he does not state what portion of
their capital is invested in stocks and real estate. The
loans made by certain local Banks, out of Pennsylvania,
ha.ving capitals of the amount of 81,363,2~4 dollars, he
states to be 108,341,268; but he gives no statement of the
loans made on 20,412,711 dollars of nominal Bank capital.
Supposing the loans on this amount to be in the same proportion, the total amount loaned by the local Banks out
of Pennsylvania, is 135,522,331 dollars, and the annual
Bank interest on it 8,673,427 dollars.
Supposing these Banks to have the same proportion of
their capital invested in stock and real estate, as the Banks
of Pennsylvania, they have 49,387,015 dollars left for the
business of discounting. From such an amount of bona
fide capital lent at six per cent., private persons would draw
an interest of $2,963,220. But the amount the Banks draw
is, 8,673,427 dollars, or 5,710,207 more than would be
drawn by private capitalists.
The sums, then, extracted from the people, over and
above six per cent. on so much of the Bank capital as is
employed in discounting, or the tax paid by the people for
the support of the Banks, would appear to beFor the support of the Banks of Pennsylvania,
$ 755,544
do.
local Banks of other States,
5,710,207
do.
United States Bank,
1,396,947
$7,862,698
We cannot pretend to be very exact in our estimate.

70

FORMATION OF BANK CAPITALS.

The local Banks in the other States, may have a greater


proportion of their capital invested in stocks and real
estate, than the Banks of Pennsylvania, or they may have
a less proportion. The total amount of their loans may be
greater or may be less than has been calculated from the
data furnished by Mr. Gallatin. It is enough to know that
the extra interest is millions per annum.
The principle on which this tax is levied, cannot be
misunderstood. With a loanable capital of 100,000 dollars, a Bank can, by the help of its deposits and circulation, make -loans to the amount of 200,000 or 300,000.
Hence, for every hundred thousand of their own capital
employed in discounting, the Banks draw twice or thrice
as much interest as is drawn from the same amount in the
hands of private capitalists. rhe gain of the Banks from
their practice of taking the discount in advance, and charging 64 days interest on notes which have but 63 days to
run, is also considerable.

CHAPTER XVII.

OJ the Formation of Bank Capitals.


When the uninitiated hear of Hanks having capitals of
500,000 or of 1,000,000 dollars, they suppose that these institutions had at their commencement, or some time after,
real money to this amount. It is a very natural supposition; but not a true one. 'rhe Banks create their own
capitals in the same manner that they create the nloney
they lend to the people.
The usual method of proceeding is as follows:
An act is passed by the Legislature to authorize the
establishment of a Bank, and certain p8rsons, called Commissioners, are appointed to receive subscriptions. It is
provided in the act that the amount subscribed shall be
paid in instalments of five or ten dollars in specie, or the
notes of specieilaying Banks, and that after one or two
instalments shall have been paid in, the Bank shall commence operations.
The first instalment, which we shall suppose to be five

FORMATION OF BANK CAPITALS.

71

dollars on a share, enables the Bank to purchase desks


and a counter, ano to pay for engraving and printing its
notes. It has then the necessary apparatus for commencing operations, and has, perhaps, a specie fund in reserve
of three or four dollars for each share of stock, to meet
contingencies.
It then begins to discount notes and circulate paper.
The spare cash of those who have dealings with it, are
deposited in its vaults. This fund enables it to extend its
operations. As the Bank notes will serve the purposes of
trade in the neighborhood, the specie is sent to distant
places to procure commodities. This leaves open a new
channel for the circulation of paper: and the Bank increases the amount of its issues. Then comes the time
for paying the sec.ond, third, or fourth instalment. The
Bank makes a call on the stockholders. Some of them
hypothecate their stock, that is, pledge it to the Bank, and
with the means obtained from the Bank itself pay in their
proportion. Others have obtained the means by discounts
of accommodation notes, without any hypothecation of stock.
Some few pay in real money: but they generally pay in
the notes of the Bank itself, or of similar institutions.
It is by this kind of hocus-pocus that Bank capitals are
formed. After the first instalment is paid, the Bank by its
own operations, facilitates the paying of the others.
The Bank of Pennsylvania and that of the United States
have more pretensions than most others to solidity of capital. It was provided in their c hartel'S, that a portion of
their instalments should be paid in Government stock.
This is not a convenient form for loanable capital, which, it
might be supposed, is what Banks should possess. But the
peculiar profits of Banks are derived from credit and circulation, and they want no more real capital of any kind than
is necessary to support their credit.
It is dIfficult to say in what the capitals of the other
Banks ever consisted, unless it be in what it consists at
present-in the promissory notes of individuals. Now, the
Banks did not obtain these promissory notes by lending
real money of their own, for they had it not to lend. They
obtained these promissory notes of the stockholders, by
giving in exchange for them the promissory note3 of the
Bank.
Thus Bank capitals are formed by exchanging

72

FORMATION OF BANK CAPITALS.

one kind of promises to pay for another kind of promil!les


to pay.
1.'his nlode of forming Bank capitals, with the stock
notes of the subscribers, is not peculiar to Banks of the
second and third order. The Banks of the most approved
standing have formed their capitals in the same way.
The nominal capital of the old Bank of the United
States, was ten nlillions of dollars. One-fifth part of this j
or two millions of dollars, was subscribed by the National
Government; but the National Government having no
money to pay its subscription, professed to borrow from the
Bank. And the Bank having no money to lend, passed a
credit of two millions in its books to the Government on
which it paid six per cent. The Government, in its turn,
received the dividends on 5,000 shares of stock of 400
dollars each at par value.
The residue of the capital, or eight millions, was subscribed by individuals, and was to be paid, three-fourths in
six per cent. stock, and one-fourth in specie, in four sixmonthly instalments of five hundred thousand dollars each.
" No more," says Dr. Erick Bollman, " or little more than
the first instalment, can ever be considered as having been
received by the Bank actually in hard money."*
The capital of the present Bank of the United States
was fixed by its charter at thirty-five millions, of which
Government subscribed seven; but Government having, as
in the former instance, no money, the Bank granted it a
credit to this amount.
'.rhe remaining twenty-eight millions of stock were subscribed for by individuals. On each share of the stock, they
were, agreeably to the terms of charter, to pay five dollars in
gold or silver coin at the time of subscribing; at the expiration of six months the further sum of ten dollars: and
at the expiration of twelve months, the further sum of ten
dollars. At each of those three periods, twenty-five dollars
more were to be paid, on each share, either in United States
stock, or in gold and silver coin, at the option of the sub
scribers.
No more or very little more, than the first instalment of
five dollars on each share, was paid in gold or silver coin.

* Paragraphs on Banks, Philadelphia, 1811. Dr. Bollman was a


zealous advocate for the renewal of the charter of the Bank.

SPECULATIONS IN BANK STOCK.

73

The Directors, indeed, proceeded on the principle that no


more was necessary. "It is clear," says one of them,
" that having commenced business, and put its paper in circulation, it (the Bank) could not enforce the specie part of
the second and third instalments of the capital, in new
acquisitions of specie. * * * * The Directors acted
wisely in discounting the notes of the stockholders, payable in specie, sixty days after date, for the payment of the
second instalment."*
It is contended by the founders of these institutions,
that this mode of forming Bank stock, is perfectly correct.
If it is, stock may becreated to almost any amount. The
Bank risks nothing, and does not increase its circulation; for
the notes which it pays out at one counter in discounting
stock notes, are paid in at another counter in subscriptions.
The subscribers pay a certain sum to the Bank as borrowers: but they receive back the same amount as stockholders. The whole business, is nothing but a paper transaction between the Bank and its stockholders.
Many of the present owners of stock have paid their
hundred dollars' worth of property, or perhaps given an
advance of twenty per cent. for the shares they hold: but
what theypaid, never went to form the capitals of the Banks.
They- paid it to the original subscribers or to those who
bought script from the original subscribers.

CHAPTER XVIII.

Of Speculations in Bank Stock, and of otller StockJobbing.


It is weB worthy of remark, that, though the Banks derive as much profit as private capitalists, from so much of
their capital as is invested in real estate and public securities, however they may have got that capital, and however
they may have formed it: and though they derive from ] 2
to ~8 p~r cent.. from so much of their capital as is employed In dIscountIng, they do not, on an average, divide more
if "A Friendly Monitor," Philadelphia, published December 15 1819
and re-published September 17, 1822.
'
,

7-1

SPEGULATIONS IN BANK STOCK.

than six per cent. When the proposal was made to form
a "safety fund," by a tax on the Banks, the proprietors of
stock in the city B~nks of New York objected to it as a
great hardship, alleging that they had not, for a series of
years, received more than 5-k per cent. per annum. The
heavy expenses of these institutions in the payment of Presidents, Cashiers, and Clerks, and the heavy losses that are
necessarily sustained when corporate interest superintends
the business of lending, are the reasons that the stockholders get much less than the people pay. Such being
the fact, the anxiety to establish new Banks might create
surprise, if we did not know that the object of the projectors of such institutions is not to lend money, but to make
money. People who have money, can lend it without the
intervention of Boards of Directors. They can lend it
more securely, and watch over it more easily. But a new
Bank will afford to some favored gentleman a snug birth
as President for life, and to another an equally snug birth
as Cashier. Poor cousins can be very conveniently provided for by giving them clerkships. To some, the new
Bank will afford facilities for borrowing; to others, it will
afford facilities for lending-at two or three per cent. a
month. To those who are to be Directors, it will impart
additional consequence in society, and give great ad vantages over their neighbors in business. Others hope to make
fortunes by speculations in the script. To further all these
objects, nothing is necessary but a charter from the Legislature, and the means of paying the first instalment. By
the convenient contrivance of stock notes, the stock of the
Bank can be completed. The circulation and deposits
will prove a certain source of revenue.
When a charter is granted, the speculators evince great
anxiety to possess the stock, and thereby create an idea
that it is something very valuable. In New York, their
practice is to subscrib~ a much greater amount than the
nominal capital, and then clamor for a pro rata division.
In the case of the Broome County Bank, the capital of
which was fixed at 100,000 dollars, the subscriptions
amounted to eight millions. In Pennsylvania, where subscriptions are not received beyond the amount of nominal
capital, draymen and other able-bodied persons are hired
by the speculators to get the script for them. They strug-

SPECULATIONS IN BASK STOCK.

75

gle" at the windows with so much violence, as to gire and


receive severe personal injury. The most disgraceful riots that occur in Philadelphia, are those which are produced by the opening of the books of subscription for a
new Bank.
These doings have their effect on simple-minded people;
and, from the prospect of large profits, they prefer Bank
stock to land and houses. The founders of the Bank
kindly spare the m some of the script at an ad vance of fi ve
or ten per cent., retaining only enough to keep the control
of the institution in their O\VI1 hands.
Even those who are not 'sirnple-minued, do not. hesitate
to buy the script at an advance, for tlrey hope to sell it at
an additional advance. They know that the price of Bank
stock in the market is regulated principally by the rate of
dividends, and that few make inquiry into the solidity of
these institutions, or have, indeed, the means of ascertaining whether, on the winding up of affairs, they can pay
fifty cents in a dollar.
From the peculiar nature of their operations, Banks may
sustain their credit. and continllP, to make high dividends,
even when nearly all their capital is gone. In ODe instanc~, in Philadelphia, a sum equal to the whole capital
of a Bank, was actually taken from it by some of its clerks
and their coadjutors out of doors, without the Directors
knowing any thing about it. The Bank continued its operations as before, supported by its deposits and its circulation. Its stock sold as high in the market as ever. When
the defalcation was discovered, the credit of the Bank received a shock. But the Directors called in one or two
additional instalments, and the Bank recovered its credit.
Its stock is now much above par.
On common gambling principles, speculations in Bank
stock are, perhaps, as eligible as speculations in any thing
else. But it may be made a question, if executors, guardians, and trustees, act with sound judgment, when they,
Inerely for the sake of facility of management, invest the
property entrt1~tp.rl to their care in stocks of this description. The ability of a Bank to pay any thing to the purchasers of its shares, depends on the ability of the original
subscribers to pay their stock notes and accommodation
notes, and on the ability of borrowers to pay their prom is..

76

SPECULATIONS IN BANK STOCK.

sory notes. This ability depends on various contingencies, all which ought to be duly considered by those who
contemplate making permanent investments of the funds
in their hands.
In making temporary investments, there is less risk.
" The house is crazy," says the weary traveller to himself,
"and must fall; but not to-night. I may therefore venture to sleep in it." When it has no profits, the Bank may
make dividends on its capital, and the fact be concealed
from all but the Directors. If its stock should fall in the
market, it may be raised again by a few pretended sales,
effected through the instrumentality of brokers.
Sometimes the funds of a Bank are employed in purchasing its stock, and then, if the price offered be sufficiently high, those who have the management contrive to
sell their own shares. In 1826, four thousand eight hundred and eighty-three shares of the Franklin Bank of New
York, were bought up with the funds of the Bank, at an
advance of 62,850 dollars. When an investigation was
made of the affairs of the Bank, in 1828, it was found
there was not enough left to pay the remaining stockholders 50 cents in a dollar.
When a Bank gets into difficulties, it sometimes su.stains
itself for a period, and affords its agents a considerable
chance of profit, by allowing them to have its notes at a
discount, on condition of their putting them in circulation
in distant places. On an investigation of the affairs of the
State Bank at Trenton, in 1825, it was proved that one of
its agents had sold bills of the Bank to the amount of
18,500 dollars, at an average discount of 37i per cent.
The very day before the Bank stopped payment, its notes
were quoted in the Philadelphia Price Current, at only Ii
per cent. discount.
- Every now and then the speculators. find it convenient
to break a Bank. This enables them to purchase up the
notes at a discount, and therewith pay what they owe to
the Bank. "'.rhere are instances," says Mr. Gallatin, "in
which the stockholders, by paying for their shares in their
own notes, and afterwards redeeming their notes with the
stock in their name, suffered no loss; and thi~ fell exclusively on the holders of Bank notes and depositors."
In the New York American, for Juue 1825, the follow.

SPECULATIONS IN BANK STOCK.

77

ing account is given of a nl0de of operation which was


adopted by the knowing ones of that city.
" The mode of proceeding is simple and not expensive,
and acquires strength by its own action. We will illustrate
it by a case. It is desired to get possession of Insurance
Company A, for example. 'The stock bears a premium in
the market, say of five per cent. Enough money is raised
among the contributors to pay the premium; and the residue is borrowed from other individuals or companies, on a
t>ledge of the stock A, at par. The original ad\'ance of the
combination is thus small, and they are thence enauled to
be operating in the stock of many Companies at once, tilL
having acquired a control in the several concerns, they
turn out all the old administrators, put in their own men,
and then go to work again with renewed energy, and means
increased by the whole amount of the capitals they have
thus acquired the control of. By artful mallagement, assiduous puffing, magnificent predictions, and supplies of
stock skilfully curtailed as the demand increases-anyone
of the stocks thus owned, may be blown up to an absurd
rate-and spared as a favor to the public, until the l\lanagers have sold all out, and realized their profits, leaving
the new purehasers to come in and assist at the bursting
of the bubble."
The Editor of another New York paper, the Inquirer,
said in June, 1826, that certain men had, "by their bonds,
rags, and hypothecation of stock, managed to control a
nominal capital of nearly four miLlions oj' dollars in different
institutions, and I do not believe" said he, "the whole
confederacy is worth 100,000 dollars."
The same editor afterwards gave a list of thirty-four
Banking, Insurance, and other companies, all which, he
asserted, were under the control of a certain gang of stockjobbers.
If a Legislature will only grant charters enough, the
speculators will have no difficulty in providing a full
" assortment" of stocks-Banking, Insurance, and of every
other description that may be wanted to suit all the varieties of taste to be found in men and women who have money to part with. If they have one Bank under control,
they can use that as a means of putting half a dozen other
Corporations into active business. So, the Northern Bank

78

CHARTERS OBTAINED AND RENEWED.

of Pennsylvania was set a going by means of a certificate


for thirty-five thousand dollars said to be deposited in one of
the New York Banks: and so, the Sutton Bank of Massachusetts was put in operation by means of 50,000 dollars in
specie, borrowed for one day from the City Bank of Boston.
Several of the kind of doings described in this chapter,
are regarded with horror by Banks which have reputations
to sustain. But, in a view of the whole syst.em, it is necessary
to take them into consideration. The aggregate of loss ~us
tained by simple-minded people, through such doings, is
enormous.
Another way of making money through the medium ot
incorporated paper-money Banks, is by dealing in Government stocks. Voltaire gives us some insight into this, in
one of his letters from Ferney, in Switzerland.
" Here I am," h~ says, "living in a way suited to my
habits, and caring but little for to-morrow; for I have a
friend, a Director in the Bank of France, who writes to me
whenever money is to be made in the public funds. Sometimes he writes to me desiring me to sell, because the Bank
is going to withdraw its notes: at other times, he bids me
to buy, for we are going to issue a quantity of notes; and
so, through the kindness of my friend, I always make money, though living two hundred miles from Paris."

CHAPTER XIX.

Of the Ways and Means by which Bank Charters are. obtained and renewed.
When a bill was under consideration in the year 1828, to
renew the charter of the New York State Bank, General
Root, then speaker of the Senate of that Commonwealth,
made a speech, from which the following is an ext-ract:
"This Bank was chartered in 1803. Who were the
original applicants, and what were the representations made
to the country members, it is not necessary to state: at all
events, it was to be a State Bank, and a democratic one.

CHARTERS OBTAINED AND RENEWED.

79

I was urged to be a subscriber to the Bank; it was said


the shares were to be scattered over the State, and the
members of the Legislature were to have shares. It was
one of the most open, palpable, barefaced acts of bribery
that can be imagIned. I was induced to subscribe; but I
lost all the shares but a few: they said they had lost the
subscription paper, or some such thing. So I told them I
would not take any. Afterwards a gentleman who came
from Albany to Delaware (i. c. Delaware county, N. Y.)
brought me a script for eight shares. I told them I would
not have any; so they kept them to themselves, I suppose."
In the year 1816, Mr. Hopkinson, of Philadelphia, had
the boldness to declare in Congress, that " he considered
the litter of Banks lately created in Pennsylvania, as the
offspring of private legislation and legislative fraud."
A few years since, a senator from Philadelphia County,
was heard to lament that a number of shares had been reserved for him in a certain Corporation, the bill for establishing which, he had assisted in passing through the
Legislature. 'rhe speculation turnwg out unfortunate, he
had lost, instead of gaining, by his services as a stockjobbing lawgiver.
There was great struggling for the .script of the Spring
Garden Bank. But we know a member of the Legislature
who merely intimated his wish to have a certain number of
shares in that Institution, and his wish was gratified.
A distinguished statesman has lately intimated "that
there is .no law against the Banks subsidizing the public
press." With equal truth, it may be said, that there is no
law to prevent members of the Legislature from partaking
of the advantages of the Corporations they themselves esta..
blish. Still it is proper that such facts should be known.
Another great inducement with members of the Legislature to vote for new Banks, is that they may have the
means of rewarding the township and ward politicians, the
"delegates" and "conferees," to whom they are indebted for their nominations. In selecting "Commissioners,"
they have the means of ,paying a debt of gratitude to some
men, and of laying others under personal obligations which
they hope will not be forgotten.
To get a majority to vote for a new Bank, is, in some
instances, no difficult undertaking. In Pennsylvania, there
is a mode of running bills through both houses, known

80

CHAR'rERS OBTAINED AND RENEVlED.

technically as "logrolling." The figure of speech is borrowed from the practice of the original settlers, who, after
cutting down the trees on their tracts of land, used to as
semble together to roll the logs into heaps. What could
not be done by one man, the united strength of many made
easy. In like manner, the members of the Legislature who
are interested in local: personal, or corporation bills, unite
their strength, and roll them all through both houses. In
this way; it may chance that fifty or a hundred bills are
passed in the course of a session, each of which, if suffered to rest on its own merit, would have been rejected.
Many members of the Legislature are averse to this
practice; but some of them are reluctantly brought into it,
by the refusal of the "Iog.rolling" members to vote for
good public bills, unless their own private bills are passed
at the same time.
The same system is known in the other States, by other
names; and it will readily be believed, that where it prevails, special privileges will be conferred on companies under any and every pretext. Such is the effect it has on
American Legislation, that a stranger, on inspecting the
list of acts annually passed, might suppose our State Governments had bee.n established for the special benefit of
stock-jobbers and speculators. In 1826, the Governor of
Massachusetts declared that, within the preceding five
years, charters had been granted to corporations within
that Commonwealth, with authority to hold thirty millions
of property. 'rhis was exclusive of charters to Banking,
Insurance, Canal and Rail Road Companies. The Governor of Delaware stated, in his official rnessage in fS25,
that there were then eighty corporations in that small State.
No doubt many legislators think that, in voting for new
Banks, they are promoting the welfare of their constituents. But the prevalence of false views of the money corporation system, in legislative bodies, is to be attributed
mainly to the exertions of those members who have a personal or political interest in establishing and supporting
such institutions.
If a Bank only preserves a tolerable credit, the 'renewal
of its charter follows as a matter of course. At least, we
have met with no instance on record, of refusal to renew
the charter of a State Bank which had not committed some
open act of bankruptcy. How far a Bank may be entitled

CHARTERS OBTAINED AND RENEWED.

81

to the credit it enjoys, is seldom inquired into. Too many


interests are then concerned. Those who have bought
stock at second hand, know not, if the Bank were compelled to wind up, if its assets woult! cover its debts. Some
of the borrowers from the Bank feel alarmed, for, if called
on to pay what they owe, their insolvency may be made
apparent, and the means of living in splendor be taken
away from them. A clerkship of 600 dollars per annum,
makes a man a firm friend of the Bank ing system: and
he who has had an accommodation note discounted, of the
amount of only 500 dollars, feels unpleasant if you hint at
the possibility of a ch:lfter's not being renewed. Such is
the weakness of human nature, that if a man owns only a
hundred dollars' worth of stock, it makes him less an enemy to money corporations than he otherwise might be.
Whenever the Legislature creates a Bank, it, at the same
time, creates an interest sufficient to sustain that Bank,
under all circumstances but those of open bankruptcy.
And, as if to give these various interests as much power as
possible, it has been contrived in Pennsylvania, that the
charters of nearly all the Banks shall expire at the same
time.
The extent of Bank influence is not easily appreciated. It
is seldom we see a "Bank ticket," or a "money corporation ticket," on the election ground: but when questions
are agitated which affect this interest, the Banks have
agents at work, whose operations are the more effective
because they are unseen. The result usually is, placing
the names of friends of paper money on all the tickets.
Over the periodical press, the Banks have great power.
Few journalists can venture to expose the money corporation system, in such plain terms as every body would understand, without risking the meam of support for themselves and families. Newspaper editors have as much independence of principle as other men; but they are far
from being independent in circumstances. The neglect
of subscribers to pay up arrears, has brought many of them
in debt to the Banks. Others who are not in debt, are
supported principally by the patronage of the Banking interest.*
... In a speech in Congress in 1816, lVIr. Calhoun, referring to the
state of the currency, said, "the evil he desired to remedy, was a deep

82

CHARTERS OBTAINED AND RENEWED.

In England it is possible to assail both the ecclesiastical


and the hereditary aristocracy, through the medium of the
periodical press. Under all the evils the people of that
country suffer, they have the consolation of enjoying freedom of discussion: but, notwithstanding our boasted liberty in the U oited States, free and full expositions of the
principal cause of our social evils would not be tolerated.:II'
In some respects, the Banks have more power than the
Government itself, They hold the purse-strings of the
nation. They can buy off enemies, and they have the
means, in various ways, of rewarding friends. Their fund
for the circulation of pamphlets is not easily exhausted.
They require no formal treaties to induce them to act in
one j almost incurable; because connected with public opinion, over
which Banks have a great control: They have, in a great measure, a
control over the press j for the proof of which he referred to the fact,
that the present wretched state of the circulating medium, had scarcely
been denounced by a single paper in the United States."
>f "Previous to commencing this pamphlet," says Mr. Carey, in a
publication made in 1816, "and during its progress in my hands, prudence and discretion have been constantly exerting themselves to repress my zeal, and to deter me from the undertaking. ".rhey have incessantly spread before my eyes the risk of offending those powerful
bodies, the Directors of the Banks, who have so many opportunities of
making 'heir indignation be felt, and some of whom may not be above
the .~ean and malignant desire of availing themselves of those opportUnItIes.
"To the soundness of these suggestions, I must freely assent. It is
plain and practicable. And were I to consult my OWll personal advantage or comfort, I should bow down in humble submission to their authority. I am well aware of the risk I run. I know if there be at ariy
of the Boards any portion of.malice or resentment, (and were there ever
twelve men assembled togther without a portion of malice and resentmen 7) it will be roused into action to pelsecute the man who has dared
to arraign their institutions at the bar of the public, and to accuse them
of gross errors, which have produced a fertile crop of misfortunes and
distress to our citizens.
"Another consequence equally clear, is present to my view. One
Bank Director, actuated by malice and re.sentment, would do me more
injury in a day, than one hundred of those whose cause I undertake to
defend, would do me good in seven years. The malic~ of the one
would be strong, lasting, insatiable, and as vigilant as Argus, with his
hundred eyes, to gratify his spleen. The friendship, or the gratitude,
of the others would be cold, torpid and lifeless."
Mr. Carey then was, and pprhaps still is, a supporter of the Banking
system. The object of his letters was simply to investigate the polity
of a curtailment of accommodations made by the Banks.

CHARTERS OBTAINED AND RENE\VED.

83

concert. They are ready organized for all occasions. The


direct power their charters give them, and the additional
power they acquire by their diversified operations, make
them all but resistless.
In the United States, there always have been, and there
are now, a great number of men opposed to the money
corporation and paper money system; but their opposition
has produced little effect. In the Bank controversy, there
is, on the one side, the strong feeling of private interest
supported by party discipline; ancl, on the other side, the
comparatively weak feeling of patriotism, without any aid
from party organization. The friends of the Banking system act in concert; its opponents act singly, if they act at
all. Against any kind of action, there are various discouragements. If a proposition is made to establ ish a
new Bank, it seems hardly worth while to oppose it, for
one Bank more or less can have no great effect. The
question immediately occurs on such occasions, why should
not these m~n, as well as others, be permitted to share the
profits of Banking? Every new Bank does, indeed, increase
the difficulty of reform; but the prospect of reform seems
so remote as to be with many thought hardly worthy of
attention.
Other difficulties arise from the system's having received
the sanction of the Federal GovernmcDt, as well as that
of the State Governments. If anyone r.,f the States was
disposed to establish a system of sound cW.rene)' and sound
credit, it would find the work impracticabl3 so long as a
paper money Bank incorporated by the Vnitel: States Government continues in existence. If a propositioL is made
to suffer the charter of the United States Bank to?xpire,
we are startled with the horrors of a multItude of State
Banks, isguing paper without limits, and failing to redeem
their notes with specie.
It ought to excite no surprise that, under such circumI3tances, the paper money system has, notwithstanding the
great evils it has produced, been prulonged to the present
time, and that it is daily strengthening and extending itself.
To get rid of it suddenly is impossible. To remove it
would require a regular plan of operations, the carrying of
which into effect would employ a series of years. Such a
plan of operations could be carried into effect by a party

84

ADVANTAGES TO SOME OVER OTHERS.

which would be willing to sacrifice all merely personal


predilections and antipathies for the grand object of breaking down the money corporation ar.d paper money system, and restoring to the great body of the American people their natural right of acquiring property by industry
and economy.

CHAPTER XX.

Summary View of the Advantages which the System gives


to some men over others.
If two individuals should trade with one another, on the
same principle that the Banks trade with the community,
it would soon be seen on which side the advantage lay. If
A should. pay interest on all the notes he gave, and finally
pay the notes themselves with his own wealth, and if B
should receive interest on all the notes he issued, and finally pay the notes themselves with A's wealth, A's loss and
B's gain would be in proportion to the amount of transactions between th~m.
This is the exact principle of American Banking operations; but, owing to the multitude of persons concerned,
the nature of the transaction is not discovered by the public. Regard the whole Banking interest as one body corporate, and the whole of the rest of the community as one
body politic, and it will be seen that the body politic pays
interest to the body corporate for the whole amount of
notes received. while the body corporate finally satisfies the
demands of the body politic by transferring the body politic's own property to its credit.
In pn vate credit, there is a reciprocity of burdens and
of benefits. Substantial wealth is given when goods are
sold, and substantial wealth is received when payment is
made, and an equivalent is allowed for the time during
which payment is deferred. If A took a note from B, endorsed by the richest man iIi the country, he would require
interest for the time for which payment was postponed.
But the Banking system reverses ,this natural order. The
interest which is due to the productive classes that receive
the Bank notes, is paid to the Banks that issue them.

ADVANTAGES TO SOME OVER OTHERS.

85

If the superior credit the Banks enjoy, grew out of the


natural order of things, it would not be a subject of complaint. But the Banks owe their credit to their chartersto special acts of legislation in their favor, and to their
notes being made receivable in payment of dues to Government. The kind of credit which is created for them
by law, being equipollent with cash in the market, enables
them to transfer an equal amount of substantial wealth
from the productive classes to themselves, giving the productive classes only representatives of credit, or evidences
of debt, in return for the substantial wealth which thp.y
part with.
To test the Banking principle fairly, let us bring down
our minds from a country to a county, and, to give definiteness to out ideas, let us, in all instances, make round
numbers the basis of our calculation.
Suppose a county to contain a thousand families of ten
persons each, and each family to he worth 5,000 dollars.
The wealth of the community is, then, 5,000,000 dollars.
One-tenth of this wealth, or 500 dollars for each family, we
will suppose to be in silver money. 'fhe rest is in land,
houses, and various commodities. The state of credit in
this county is as sound- as the state of the currency. The
distribution of wealth is left to natural laws. The production and acquisition of riches are never separated. Every
man enjoys what he produces, and what he saves; and no
man enjoys what is produced or what is saved by another.
We will suppose the income of this community to be
1,000,000, dollars, or 1,000 dollars a year for each family,
and that 700,000 dollars of this aggregate income is derived
from industry, and the rest from capital, profits being at the
rate of six per cent.
In this county are ten men of a speculative turn of mind,
who grow tired of working and saving, and wish to grow
rich in some more easy way. They apply to the Legislature for a charter for a Bank,with a nominal capital of 100,000
dollars, divided into a thousand shares of 100 dollars
each: and their prayer is granted. It is 'provided in the
charter that, as soon as five dollars shall be paid on each
share, the Bank shall cornmenceoperations. The payment of
the other instalments is, according to the custom of Pennsylvania, left to the discretion of the Directors.

86

ADVANTAGES TO SOME OVER OTHERS.

The business of Banking is new in this county, and as


none clearly understand its operation but t'he ten speculators, they subscribe for the whole of the stock, or for one
hundred shares each. Each of them pays down 500 dollars, making the whole capital paid in, 5,000 dollars.
The Bank then commences business, and issues notes
to the amount of 25,000 dollars. By the contrivance of
" convertibility," and by another contrivance by which
they are made receivable in payment of dues to Government, the notes become current. The notes are borrowed
by the speculators. Each speculator has then 2,500 dollars at command, instead of 500. It is true, he pays interest to the Bank as a borrower: but he receives the same
interest back as a stockholder. It is evident that the equality of wealth is destroyed. '.rhe possession of a monied
capital so much greater than thatof his neighbors, wilJ
give him ad\rantages in trade equal to double the amount
of interest. But, estimating his advantages as equal to only
six per cent., his annual income is increased from 1000
dollars to 1120, his 500 dollars formerly yielding him but
30 dolJars a year, and now, by their conversion into Bank..
stock, yielding him 150 dollars; for, each metallic dollar is,
by this contrivance, made to produce to him am much as
fi ve did former] y.
But this is only the first operation of the Bank. Some
of the families in the county deposit their silver in the
vaults of the Bank, for safe-keeping. Other families, finding that Bank notes serve all the purposes of domestic
trade, export their sihrer. This creates a new demand
for Bank notes as a circulating medium. In time, the
Bank finds that its permanent' deposits of silver are not liable
to be reduced beyond a certain amount: and to increase its
profits, it lends a great part of the silver to those who export it.
It may require some years to bring the machine into
conlplete operation. The" prejudices" of some men
against paper, and in favor of metallic money, are not easily
subdued. But even those with whom the "prejudices H
remain, are brought at length, through the force of example, through necessity, or through some other cause, to
make deposits in Bank, and to pay- and receive Bank
paper. Bank medium then becomes the money of the

ADV ANT AG ES TO SOME OVER OTHERS.

87

county: and as soon as this is accomplished, the regular


receipts of the Bank may be estimated as follows:
On 100,000 of Bank notes lent, at 6 40,
$6,400
On 100,000 of active Bank credit lent,
6,400
On 100,000 of silver deposited by some, and
lent by the Bank to others who export it,
6,400

$19,200
On this supposition, 200,000 of metallic money will be
left in the county, half of which may be in the vaults of
the Bank, and the other half circulate as the medium of
retail trade.
In ou! haste we passed over the payment of the second,
third, and subsequent instalments of the stock. It was
not of much moment. The payments were merely nominal. The speculators could easily have paid all the instalments, after the first, by the profits derived from the operations of the Bank itself. But where would have been the
use of this 1 'fhe money, if paid in, would have been lent
and exported.
It would have added something to the
income of the Bank. But each speculator can make
as much by keeping it in his own hands. The original
sum of 5,000 dollars, and so much of the silver of depositors as is retained, are sufficient to support the credit of
the Bank. Each of the speculators, therefore, throws in
a note for 500 dollars, when the second instalment becomes
<.lue. The Bank discounts it: pays out its own paper at
one counter, and receive~ it hack at another, or, perhaps,
only makes a new credit entry in its books. It is true, that the
speculators are made debtors to the Bank for a certain
amount as borrowers: but they are credited with an equal
amount as stockholders: and in this way the whole of the
remaining instalments may be arranged. By this contrivance
the sum of 95,000 dollars will be added to the debts due
to the Bank, but nothing to its circulation or responsibilities.
The time has now come, in which the speculators may
sell a part or the whole of the stock. They may with safety
dispose of seven hundred and fifty shares, to widows, orphans. and literary and charitable institutions, for these
will never interfere with Bank management.
We will deduct 9,200 dollars from the gross income of

88

ADVANTAGES TO SOMP OVER OTHERS.

the Bank, for expenses, losses, and reservations for a contingent fund. It will then be able to divide ten per cent.
on its nominal capital: and at the rate at which permanent annuities are calculated, stock yielding ten per cent.
will be estimated as worth in the market 150 dollars a
share. Each of our speculators sells seventy-five shares
of his stock at this rate, or for 11,255 dollars, and invests
the proceeds ill land, houses, or merchandise. The risk
of payment to the Bank of the notes discounted, he transfers to the purchaser of the stock.
Thus we see that our ten speculators have, by the "judicious" use of 5,000 dollars of metalic money, got transferred to them 112,550 dollars' worth of real and personal
estate. Retaining two hundred and fifty shares of stock,
they keep the control of the institution in their own hands.
Now, we pretend not to say that the accounts of anyone
of our American Banks would, if faithfully exhibited, accord
in every particular with this supposed case. Their profits do
not appear to be usually as great: but extreme cases
serve best to illustrate principles; and these are the fundamental principles of the American Banking System. A
small ~mount of metalic money is paid in: the other instalments are arranged by the discounting of stock notes.
The Bank extends its operations by discounts on deposits,
and by substituting a paper for a metalic medium: and, at
a suitable time, the founders of the Bank sell a portion of
the stock, and invest the proceeds in lands, houses, and
merchandise.
The Bank of Ch~ster had, on the 3d of November, 1829,
a capital of 90,000 dollars, notes in circulation to the
an10unt of 209,064 dollars, and deposits to the amount of
166,374 dollars. The specie in its vaults amounted to
61,462 donars, and the investments on which it was drawing interest amounted-apparently to 45] ,663 dollars. The
circulation and deposits of the Bank of Chester, were alto..
gether 375,438. Those of the Bank in the case supposed,
for the sake of illustrating the principle, were only 300,
000 dollars. The in vestments of the Bank of Chester,
'yielding interest, amounted to 451,663. Those of the
supposed Bank, to only 395,000~ including the stock notes
of the ten founders of the Bank.
It may be, that the whl)le 90,000 of the capital of the

ADVANTAGES OF SOME OVER OTHERS.

89

Bank of Chester was paid in, without any resort to discounting of stock notes, or any similar contrivances. But
if it was, there was nothing in the principles of the system
to prevent the stock of the Bank of Chee,ter from being
filled up in the way which is usual in establishing new
Banks in America. The Bank of Chester County having gone into operation in the year in which specie payments were suspended, the filling up of its stock must haye
been an easy process, whatever method was adopted.
As it is public credit that supports the Banks, and not
the Banks that support l:ublic credit-as the deposits of
the Banks are the property of the community generally,
and as the profits derived from circulation come front' the
community generally, they ought to go to the community
generally, and be used (if used at all) to lighten the burdens of taxation. "If," says Ricardo, "a charter were
about to expire, the public might question the policy of
permitting a company to enjoy all the advantages which
attend the supplying of a great country with paper money.
Paper money may be considered as affording a seignorage
equal to its whole exchangeable value-but seignorage in
all countries belongs to the State."
If, after the manner of the Scotch Banks, the American
Banks paid four per cent. interest on deposits, and granted
discounts at the rate of five per cent. there would be something like equity in this department of their operations,
for one per cent. would not be more than a fair commission.
But they allow no interest on deposits, except in Boston,
and perhaps in Baltimore, though it is, in point of fact,
through the means of the deposits, that they support the
credit of the notes they have in circulation.
But the reader will have a very imperfect idea of the advantages the present Banking 3yslem gives to some men, if
he extends his view no further than the profits derived from
trading on deposits, from substit.uting a credit medium of
cotnmerce for a metallic medium, from the formation of Bank
stock secundum artem, and the subsequent exchange of
that Bank stock for lands, hou&es and merchandise.
In addition to this, he must take into considerationWhat some have gained and others have lost, by the various kinds of stock-jobbing and usury, to which Banking
has gi ven rise:

90

REMOTE CONSEQUENCES OF THE SYSTEM.

What some have gained and ethers lost, by thatfluctua.


tion of prices which is produced by "contractions" and
" expansions" of Bank medium, and which has made most
kinds of business more uncertain than a lottery:
What some have gained and others lost, through that
super-extended system of commercial credit, which has its
origin and support in Banking:
What some have gained and others lost, by the breaking
of upwards of one hundred and sixty Banks between the
years 1811 and 1830 :
What some have gained and others lost, through the cir~
culation of counterfeit notes:
What some have gained and others lost, by receiving
genuine notes at one rate, and passing them at another:
Let him add all these accounts together, and he will have
a pretty correct idea of what some have gained and others
have lost by the direct operations of the system.

CHAPTER XXI.

Of the Remote Consequences of the System.


Our view of the extent to which paper-money Banking
affects our social condition, win be very imperfect, if we
confine it to the direct operations of the system. These
are, as it were, but the first links of a long extended chain.
Each effect becomes in its turn a cause; and the remote
consequences are of more importance than the immediate.
'ro prove this, a few plain truths will suffice.
If two men start in life at the same time, and the one
gets, at the commencement, but a small advantage over the
other, and retains the advantage for twenty or thirty years,
their fortunes will, at the end ofthat period, be very unequal.
If a man at the age of twenty-one years, is deprived of
one hundred dollars which he had honestly earned, and
honestly saved, the injury .done to this man must be estimated by the advantage he would have derived from the
use of his little property during the rest of his life. The
want of it may prevent his turning his faculties to the best
account. The loss may dispirit his future exertion.
If a man is, at any period of his liie, deprived of a pro-

REMOTE CONSEQUENCES OF THE SYSTEM

91

perty, large or small, accumulated for him by the honest


industry and economy of his ancestors, the wrong done to
him is of the same character as that which he sustains
when he is unjustly deprived of property which was the
fruits of his own industry. It is the dictate of nature that
parents shall leave their wealth to their children, and the law
of the land, in this case, only confirms the dictate of nature.
It is not easy to set bounds to the effects of a single act
of injustice. If you deprive a man of his property, you
may thereby deprive him of the means of properly educating his children, and thus affect the moral and intellectual character of his descendants for several generations.
Such being the consequences of single acts, we may
learn from them to estimate the effects of those political
and commercial institutions which operate unequally.
They lay the foundation of an artificial in equality of wealth :
and, whenever this is done, the wealth of the few goes on
increasing in the ratio of compound interest, while the reflux operations of the very causes to which they owe their
wealth, keep the rest of the community in poverty.
Where the distribution of wealth is left to natural and
just laws, and the natural connection of cause and effect
is not violated, the tendency of " money to beget money,"
or rather of wealth to produce wealth, is not an evil. A
Inan has as strong a natural right to the profits which are
yielded by the capital which was formed by his labor, as he
has to the immediate product of his labor. 'ro deny this,
would be to deny him a right to the whole product of his
The claims of the honest capitalist and of the
labor.
honest laborer, are equally sacred, and rest, in fact, on the
same foundation. Nor is it the law of nature that the idle
and improvident shall suffer temporary inconvenience
only. By neglecting to form a capital for themselves, they
render their future labor less productive than it otherwise
might ue : and finally make themselves dependent on others
for the means of both subsistence and employment.
But, unequal political and commercial institutions invert
the operation of the natural and just causes of wealth and
poverty-take much of the capital of a country from those
whose industry produced it, and whose economy saved it,
and give it to those who neither work nor save.
'fhe
natural reward of industry then goes to the idle, and the
natural punishment of idleness falls on the industrious.

92

REMOTE CONSEQUENCES OF THE SYSTEM.

Inasmuch as personal, political, commercial, and accidental causes, operate sometimes in conjunction, and sometimes in opposition, it is diffiult to say, in individual cases,
in how great degree wealth or poverty is owing to one
cause or to another. Harsh judgments of rich and poor,
taking them individually, are to be avoided. But it is notorious, that, as regards different classes in different countries, wealth and poverty are the consequences of the positive institutions of those countries. Peculiar political priviliges are commonly the ground of the distinction: but
peculiar commercial privileges have the same effect: and
when the foundation of the artificial inequality of fortune is
once hid, (it matters not whether it be by feudal institutions or money corporations,) all the subsequent operations
of society tend to increase the ,difference in the condition
of different classes of the community.
One consequence of unequal institutions is increasing the
demand for luxuries, and diminishing the effective demand
for necessaries and comforts. Many being qualified to be
producers of necessaries, and few to be producers of luxuries, the reward of the many is reduced, and that of the
few raised to an enormous height. The inventor of some
new means of gratification for the rich, is sure to receive
his recompense, though thousands of able-bodied men may
be starving around him.
This may be illustrated by a case drawn from England,
where the favorite opera-singer receives her thousands per
annum, while th~ able-bodied agriculturalla borer is forced
'<> draw on the parish rates for subsistence.
Something similar to it may be found in our own country,
where the second rate singers, dancers, and players of Eu.
rope, accumulate fortunes in a few years, while multitudes
of humble but useful women in all our large cities, struggle hard for the means of a bare su bsistence.
Now, there is no cause of complaint in people's lavishing
their thousands on favorite singers and dancers, if these
thousands have been honestly earned and fairly got. But
if they owe their thousands to political or commercial institutions operating specially to their advantage, those political and commercial institutions are not of the kind most
conducive to social happiness.
Through all the operations of business, the effects of an

REM'OTE CONSEQUENCES OF THE SYSTEM.

93

unequal distribution of wealth may be distinctly traced


The rich have the means of rewarding most liberally the
professional characters whom they employ, and the tradesmen with whom they deal. An aristocracy in one department of society, introduces an aristocracy into all.
These effects are, it is true, most obvious in countries
where the causes of an artificial inequality of wealth are ofa
permanent character, and connected with political organization: but they can be discovered in our own country. The
inequality of reward our lawyers and physicians receive, is
caused but in part by inequality of talent. It is owing in
part t.o the inequality of the means of those who employ
them: and to the disposition the many have to prefer the
lawyer or the physician who is patronized by the rich and
fashionable. They feel that their own education disqualifies them for forming a proper estimate of professional
talent, and take the judgment of those they suppose must,
from their superior wealth, have better means of information.
It is, however, among the hard-working members of
society, that the ultimate effects of such causes are most
observable.
The condition of a multitude of poor women in our large
cities, has lately attracted the attention of the benevolent.
It appears from the stater}1cnts that have been published,
that they can, by working ten or twelve hours every day,
earn no more than from seventy-five cents to a dollar
a week. Half of this sum goes for house rent and fuel,
leaving them from thirty-seven and a half cents to fifty
cents a week for food and clothing for themselves and children. Some thousands are said to be in this situation in
Philadelphia alone.
Various proposals have been made to better their condition: some futile, others absolutely pernicious. The laws
of supply and demand are too powerful to yield to sermons find essays. The low rate of the wages of these poor
women, is the effect of general causes-causes which affect,
in one way or another, every branch of business. In the
great game we ht\ve been playing, much of the wealth of
the country has passed into a few hands. l\Iany men dying, have left nothing to their widows and children; and
others who still live, cannot support their families, except

94

EFFECTS ON MORAL CHARACTER.

by the additional industry of their wives. The work of a


seamstress can be done by a woman in her own house, in
the intervals she can spare from attention to her children.
In this way, the number of seamstresses has been increased.
On the other hand, many families who would gladly employ these poor women, are compelled by their own straitened circumstances, to do this kind of work themselves.
In this way the demand for seamstresses is diminished.
Private benevolence may improve the condition of individuals of this class: but the class itself can be benefitted
by such causes only as will diminish the number of seamstresses or increase the demand for their labor. The cause
that will improve the condition of one of the industrious
classes of society, will improve the condition of all. When
an end shall be put to unfair speculation, then, and not
till then, will honest industry have its just reward.

CHAPTER XXII.

Effects on Moral Cltaracter.


The practices of trade seem, in most countries, to fix the
standard of commercial honesty. In the Hanse towns and
Holland, while they were rising to wealth, this standard
was very high. Soldiers were not more careful to preserve
their honor withont stain, than merchants were to maintain
their credit without blemish.
The practices of trade in the United States, have debased the standard of commercial honesty.
Without
clearly distinguishing the causes that have made commerce
a game of hap-hazard, men have come to perceive clearly
the nature of the effect. They see wealth passing continually out of the hands of those whose labor produced
it, or whose economy saved it, into the hands of those who
neither work nor save. 'rhey do not clearly perceive how
the transfer takes place: but they are certain of the fact.
In the general scramble they think themselves entitled to
some portion of ~he spoil, and if they cannot obtain it by
fair means, they take it by foul.

EFFECTS ON MORAL CHARACTER.

95

Hence we find men, without scruple, incurring debts


which they have no prospect of paying.
Hence we find them, when on the very verge of bankruptcy, embarrassing their friends by prevailing on them to
indorse notes and sign custom-house bonds.
J nstances not unfrequently occur of men who have failed
once or twice, afterwards accumulating great wealth. How
few of these honorabl y dis~harge their old debts by paying
twenty shillings in the pound!
How many evade the just demands of their creditors, by
privately transferring their property.
It is impossible, in the present condition of society, to
pass laws which will punish dishonest insolvents, and not
oppress the honest and unfortunate.
t'
Neither can public opinion distinguish between them,
The dishonest share the sympathy which should be given
exclusively to their unfortunate neighbors: and the honest
are forced to bear a part of the indignation which should
fall entirely on the fraudulent.
The standard of commercial honesty can never be raised
very high, while trade is conducted on present principles.
"It is hard," says Dr. Franklin," for an empty bag to
stand upright." The straits to which many men are reduced, cause them to be guilty of actions which they would
regard with as much horror as their neighbors, if they were
as prosperous as their neighbors.
We may be very severe in our censure of such men,
but what else ought we to expect, when the laws and circumstances give tJ) some men so great ad vantages in the
great game in WhlOh the fortunes of the whole community
are at issue-what else ought we to expect, but that those to
whom the law giys uo 8uch advantage, should exert to the
utmost such faculties as remain to them in the struggle for
riches, and not be very particular whether the means they
use are such as the law sanctions or the law condemns.
Let those who are in possession of property which has
been acquired according to the strict letter of the law, be
thankful that they have not been led into 3uch temptations
as those on whom the positive institut.ions of society have
had an unfavorable influence.
But, Banking has a more extensive effect on the moral
character of the community, through that distribution of

96

EFFECTS ON MORAL CHARACTER.

wealth which is the result of its variou s direct and remote


operations. Moralists in all ages, have inveighed against luxury. To it they attribute the corruption of morals, and the
downfall of nations. The word luxury is equivocal. What is
regarded as a luxury in one stage of society, is, in another,
considered as a comfort, and in a still more advanced stage
as a necessary. The desire of enjoyment is the great stimulus to social improvement. If men were content with bare
necessaries, no people would, in the arts and sciences, and
in whatever else renders life desirable, be in advance of
the lowest caste of the Hindoos, or the unhappy peasantry
of the most unhappy country of Europe.
But, whatever moralists have said against luxury, is true
when applied to that artificial. inequality of fortune which
is produced by positive institutions of an unjust character.
Its necessary effect is to corrupt one part of the community, and debase the other.
The bare prospect of inheriting great wealth, damps the
energies of a young man. It is well if this is the only evil
it produees. "An idle man's brain," says John Bunyan,
" is the devil's workshop." Few men can have much leisure, and not he injured by it. To get rid of the ennui of
existence, young men of wealth resort to the gambling table, the race ground, and other haunts of dissipation. They
cannot have these low means of gratification, without deb~sing those less favored by fi)ftune.
The children of the poor suffer as much in one way, as
the children of the rich suffer in another. The whole energies of the father and mother are exhausted in providing
bread for themselves and their family. They cannot attend properly to the formation of the moral character of
their offspring-the most important branch of education.
They can ill spare the means to pay for suitable intellectual instruction. Their necessities compel them to put
their children to employments unsuited to their age and
strength. The foundation is thus laid of diseases which
shorten and imbitter life.
Instances occur o(-lpen, by the force of their innate
powers, overcoming '.tlfe advantages of excess or defect of
wealth; but it is true, as a general maxim, that, in early
.life, and in every period of life, too much or too little
wealth, is injurious to the character of the individual, and,

EFFECTS ON HAPPINESS.

97

when it extends through a community, it is injurious to


the character of that community.
In the general intercourse of society, this artificial inequality of wealth produces baneful effects. In the United
States, the pride of wealth has more force than in any other
country, because there is here no other pride to divide the
human heart. Some of our good republicans do, indeed,
boast of a descent from the European nobility; but when
they produce their coats of arms, and their genealogical
trees, they are laughed at. The question is propounded, if
their noble ancestors left them any money. Genius confers on its possessor a very doubtful advantage. Virtue,
with us, as in the days of the Roman poet, is viler than
sea weed, unless it has a splendid retinue. Talent is estimated only as a means of increasing riches. Wealth alone
can give permanent distinction, for he who is at the top
of the political ladder to-day, may be at the bottom tomorrow.
One mischief this state of things produces, is, that men
are brought to consider wealth as the only means of happiness. Hence they sacrifice honor, conscience, health,
friends-every thing, to obtain it.
The other effects of artificial inequality of wealth, have
been treated of at large, by moralists, from Solomon and
Socrates downwards. To their works, and to the modern
treatifles on crime and pauperism, we refer the reader. The
Jast mentioned treatises are, for the most part, only illustrations of the ultimate effects of positive institutions, which
operate unequally on different members of the community.

CHAPTER XXIII.

Effects on Happiness.
The inferences the intelligent reader must have drawn
from what has already been stated, preclude the necessity
of much detail in this part of our inquiry.
Wealth is, if independently considered, but one among
fifty of the causes of happiness: and poverty J viewed in

98

EFFECTS ON HAPPINESS.

the same light, is but one among fifty of the causes of misery. 'rhe poorest young man, having health of body and
peace of mind, and enjoying the play of the social sympathies, in the affections of wife, children and friends, i~ happier than the richest old mau, bowed down with sickness,
oppressed with anxiety for the future, or by remorse for the
past, having nobody to love, and beloved by nobody.
But though we may, by mental abstraction, consider
wealth independently, or poverty independently, neither
the oue or the other is absolutely independent in its operation. There is no cause in either the physical or the moral
world, but which works in cOl'ljunction with other causes.
Health of body and peace of mind, with the just play of the
social affections, may give happiness, independently of
\vealth: but in extreme poverty, it is difficult to preserve
either health of body or peace of mind, and the play of the
social affections becomes then a source of misery.
Some little wealth, at least enough for daily subsistence,
is necessary for the enjoyment of life and the pursuit of
happiness: and hence it is, that the right to property is as
important as the right to life and the right to liberty. "You
t.ake my life when you do take the means by which I
live."
The majority of men are of such temperament, that
something more than the means of subsistence for the bare
twenty-four hours, is necessary for tneir happiness. They
must also ha ve a prospect of enjoying the like means of subsistence in future days. But this is a prospect which, with
the reflecting part of the poor, is frequently overcast with
clouds and gloom. Few journeymen mechanics are able
to make adequate provision for sickness and old age. The
wages of a laborer will support him and his family while
he enjoys health and while employment is steady: but in
case of long continued sickness he must look for relief frOlU
the hand of public or of private charity. If he casts his eyes
on his wife and children, his dying hours are imbittered
with thoughts of the misery which may be their portion.
Corroding care is the inmate of the poor man's breast. It
is so heart-withering, that it may be made a question, if the
condition of some slaves in the Southern States is much
\vorse than that of many citizens of the other States. The
want of liberty is a great drawback on happiness: but the

EFFECTS ON

I1APPINES~.

99

slave is free from care. He knows that \vhen he grows


old, or becomes infirm, his master is bound to provitle for
his wants.
There would be less objection to that artificial inequality of wealth which is the result of unjust positive institutions, if it increased the happiness of onc class of society
in the same proportion that it diminishes the happiness of
another class. But, increase of wealth beyond what is necessary to gratify the rational desires of a mall, does not
increase his happiness. I f it gives birth to irrational desires,
the gratification of them must produce misery. Even when
inordinate wealth does not give birth to irrational desires,
it is attended with an increase of care, and this is a foe to
happiness.
With some men, the love of wealth seems to be a blind
passion. The magpie, in hiding silver spoons in its ne~t,
appears to act with as much reflection as they do, in piling
money-bag on money-bag. They have no object in view
beyond accumulation. But, with most men, the desire of
great wealth appears subordinate to the love of grc!lt power
and distinction. This is the end, that the means. They
love fine houses, splendid equipages, and large possessions,
Jess for any physical gratification they impart, than for the
distinction they confer, and the power they bestow. It is
with some, as much an object of ambition to be ranked
with the richest men, as it is ,,,,,ith others to be ranked with
the greatest warriors, poets, or philosophers.
The love of that kind of distinction which mere wealth
confers, is not a feeling to be highly commended: but it
is hardly to be reprobated, when it is constitutional, and
when it is under the government of proper moral principle.
In this case, it is a simple stimulus to vigorous industry and
watchful economy. With some men, the love of ease is
the ruling passion, with others the love of pleasure, and
with others the love of science. If the love of riches was
not, with many men, stronger than any f)f the other
loves we have mentioned, there might not be enough wealth
accumulated to serve the general purposes of society. They
may claim the liberty of gratifying their particular passion
in a reasonable way: but it is a passion which derives less
gratification from the actual possession of a large store,
than from the constant increase of a small one.
The

100

EFFECTS ON HAPPINESS.

man whose wealth increases gradually from 100 dollars to


1000, thence to 5000, thence to 10,000, and thence to
50,000, ltas more satisfaction in the process than he who
suddenly becomes possessep of 100,000 dollars. As to
the distinction which mere wealth r,onfers, it would be obtained in a state of society in which the distribution of
wealth was left to natural laws, as certainly as in a state in
which positive institutions operate to the advantage of the
few, and to the disadvantage of the many. If the riches
of men were made to depend entirely on their industry, economy, enterprize, and prudence, the possession of 100,000
dollars would confer as much distinction as the possession of
500,000 dollars confers at present. Those worth" a plum,"
would then rank among the" first men" on 'change: those
who are worth" five plums" can rank no higher now.
But the system has not a merely negative effect on the
happiness of the rich. Such is the uncertainty of fortune
in the United States, that even the most wealthy are not
exempt from painful solicitude for the future. Who can be
sure that he will be able to navigate his own bark in safety
to the end of the voyage, when he sees the, shore strewed
with wrecks 1 If'R man leaves an estate to his children,
he knows not how long they will keep possession of it. If
he extends his views to his grand children, the probability
will appear strong that some of them will be reduced to abject poverty.
Such is the present custom of trade, that a man who has
a considerable capital of his own, not un frequently gives
credit to four or five times the amount of that capital. He
is a rich man, but even if the debts due to him are perfectly secure, the perplexity which is created by a long
train of credit operations, the failure of but one of which
may prove his ruin, must leave him little ground for solid satisfaction: and the necessity he is under in times of embarrassment, of courting the good-will of Bank Directors, goes
far towards destroying his personal independence. "The
servile dependence on Banks, in which many of our citizens pass their lives," was observed by Mr. Carey as long
ago as the year 1811.
There is one other evil resulting from the super-extended system of credit which has its origin in Banking, and
with a few observations on this, we shall close our remarks

EVILS OF A SUDDEN DISSOLUTION OF THE SYSTEM.

101

on this head of the subject. We allude to the misery suffered by an honest man, who is involved in debts. We
have known cases in which none of the common rules of
prudence had been transgressed in incurring the debts, in
which the creditors were perfectly convinced of the
honesty of the debtor, and neither pressed for payment,
nor reflected on his disability to comply with his engagements: in which the debtor was sensible that his failure
would not subject his creditors to any serious inconvenience; and yet a gloom would overspread the mind of the
debtor, and remain there for years.

CHAPTER XXIV.

Of the Evils that would be produced by a sudden dissolution of the System.


If every Bank note in the country were consumed by
fire to-morrow, the wealth of the nation would be diminished just as much as it would be by the destruction of so
much waste paper.
So, if all the title-deeds of estates were desttoyed, the
loss of positive wealth would be equivalent to the loss of so
many skins of parchment. But very great injustice would
be done to individuals by the destruction of these skins of
parchment; and not less, probably, by the sudden destruction of Bank notes.
It is an easy thinr; to establish a Banking system: but
it is not very easy to get rid of it after it has been some
years in operation. 'rhe sudden abolition of it, would produce an entire destruction of private credit, a universal
pressure for the payment of debts, and a general disability
to comply with engagements. Business of nearly every
kind would be suspended, and the laboring part of the
community would be deprived of employment.
If all the Bank notes in the country should be destroyed
to-morrow, the twenty-two millions of specie which are
said to be in the vaults of the Banks, would be pu t in cir
culation, which, added to the ten millions of specie sup-

102

EVILS OF A SUDDEN DISSOLUTION OF THE SYSTEM.

posed to be at present in circulation, would make a total


of thirty-two millions'. Supposing Bank credits to be de!troyed at the same moment, the circulating medium would
suddenly be reduced from one hundred and nineteen millions (which is, according to Mr. Gallatin, the present
aggregate of specie, notes, and Bank credits) to thirty-two
millions. If an end were not put to all transactions except
by means of barter, the fall of prices would be at least
seventy-five per cent.
If but half of the Bank notes and Bank credits should
be suddenly abolished, the fall of prices would be in
greater proportion than the reduction of medium, from the
immense quantities Qf land and of merchandise which
would be thrown into the market.
If the Bank medium should be suddenly reduced only
one-fourth, the fall of prices would be at least twenty-five per
cent., and universal embarrassment would be the consequence.
Many of those who have acquired capital by the different operations of Banking, would not, perhaps, desire any
thing better than the sudden destruction of the system.
Most estates which are now mortgaged for only one-third
or fourth of their worth, at the present rate of valuation,
would fall into the hands of speculators. '.rhe condition of
the whole country would be like that of Kentucky when
she adopted her "re.Jief laws." The people. would clamor
for the issue of paper money by the State Governments,
and a worse systern than the present might be adopted, if a
worse be possible.
Public opinion in the Uoited States, when it once takes
root, runs so rapidly to maturity, that this caution is not
unnecessary~ Some who are now living may see the titne
when the popular feeling against the Banking system will
be stronger than the feeling ever was in its favor.

PROPER MODE OF PROCEEDING.

103

CHAPTER XXV.

Of the Proper Mode of Proceeding.


As paper drives specie out of circulation, so, the withdrawal of paper brings specie Bank again. Whererer there
is a vacuum it flows in, unless political regulations counte..
ract its tendency to find its own level.
If we gradually withdraw Bank notes from circulation,
no evil will ensue, for specie will immediately supply their
place.
The proper mode of proceeding would be, to begin with
the smallest notes, and proceed gradually to those of the
highest denomination.
Mr. White, of New York, in his report to Congress,
made in February, ]831, estimates the amount of notes in
circulation of a less denomination than five dollars, at not
more than seven millions.
This does not exceed the
amount of gold and silver we sometimes import in one
year. But, through the use made of paper, the gold and
silver imported in one year are exported in the next. Let
small notes fall into disuse, and an equal amount of specie
will be retained in the country.
The amount of five dollar notes in circulation is estimated by l\'Ir. White at ten millions. Two years after the
act to prohibit the issuing of small notes, it would be perfectly safe to prohibit the issuing of notes of a less denomination than te n dollars.
In two years more, the prohibition might be extended to
notes of a less denomination than twenty dollars. Our
currency would then be on a par with that of Great Britain.
In two years more the issue of notp.s of a less denomination than fifty dollars might be forbidden; and in two years
after that, the issue of notes of a less denomination than
100 dollars.
In this way, in the short period of ten years, and without
producing any commercial convulsion, specie might be
mad~ to take the place of paper.
We speak from experience. The principles of the mea!Sure have been tried in Virginia, Maryland, and Pennsylvania. In the way in which these States have got rid

104

PROPER MODE OF PROCEEDING.

of small notes, the other States may get rid of them. In


the way in which small notes have been driven from circulation, notes of every denomination may be made to give
place to specie.
In some parts of Pennsylvania, violent opposition was
made to the act to prohibit the circulation of small notes,
from an opinion that it would" make money scarce." The
grand juries of the counties of Beaver and Erie went so far
as to present it as a nuisance. But the Legislature remained firm in its purpose, and many of the former opponents
of the law are now among its warmest supporters. The
effect of the measure was just such as its friends predicted.
An immense quantity of trash disappeared from circulation,
and its place was supplied with silver.
The principles of the measure have also been tried in
England, where, in 1829, the issue of notes of a less
denomination than five pounds sterling was prohibited.
The proceeding there was from notes of one pound,
or four dollars eighty cents, to notes of five pounds, or
twenty-four dollars-a greater jump than would be advisable in America.
Some of our most uistinguished statesmen appear to be
of opinion that, if it were possible to substitute a metaJJic
for a paper medium, it would greatly promote the interests
of the country. Nothing hinders, but want of inclination.
If either of the great political parties into which our nation is divided, would take a decided stand in favor of
sound currency and sound credit, the cause of sound currency and sound credit would be triumphant. The industrious classes of the nation would array themselves with
that party, as soon as they could be made to understand
the question, and the speculators and their satellites would
be vanquished in the contest.
If our national debt was of great amount, and if our
taxes were heavy, sonle difficulties might be experienced
in passing from a paper to a metalIic medium. But our
national debt is now merely nominal, and the taxes payable to the United States may, if necessary, be reduced,
without diminishing the efficiency of Government. A
country and a people possessed of so much elasticity, could
bear greater changes than any here proposed.
Of the perfeet feasibility of the measure, we may- be

PROPER MODE OF PROCEEDING.

105

convinced in another way. Our exports of domestic produce amount annually to bet\\'een fifty and sixty millions
of dollars. If we should buy from five to ten millIons a
year of gold and silver, for ten years, we should still have
between forty and fifty millions to expend in the purchase
of European manufactures, and East and West India products. If, by the withdrawal of paper, a demand for specie
to the amount of twenty millions annually should be created, it could readily be supplied. England, in four years,
on the resumption of specie payments, imported twenty
millions sterling In gold alone. Our demand could be
supplied by both gold and silver.
Supposing the withdrawal of the Bank notes should
cause a diminution of Bank discounts of equal amount,
the effect, if we proceeded gradually, would be almost imperceptible. If two years were allowed for the withdrawal
of small notes, the diminution of Bank discounts would, in
this period, and on this supposition, be at the rate Qf
3,500,000 dollars a year. In the single city of Philadelphia, there have been, in periods of less than a year, reductions of Bank discounts to as great an amount as is here
proposed for the whole country.
According to the estimate of 1\lr. Gallatin, the whole
amount of Bank notes in actual circulation, in 1830, was
about 54,000,000.
Surely it will not be said, that our
whole nation cannot payoff an amount of Bank debt, equal
to the amount of Bank notes in circulation, in the period
of ten years.
But, supposing we should, in the course of ten yeard,
choose to payoff an amount of Bank debt, equal to the
whole amount of Bank medium, or of both Bank notes and
Bank credits, amounting together to 109,000,000, would it
be a work of insuperable difficulty? In the last seven
years, the Government has paid off the public debt at the
rate of eight or ten millions a year: can we not, all of us
together, payoff between eleven and twelve millions a year
of Bank debt?
In a pamphlet entitled "Remarks on the Annual Treasury Report," published in 1828, and said to be written by
two practical economists, distinguished for their talents
and information, the whole capital of the country is estimated at 12,000,000,000 dollars, and its productive industry

106

NEW COIN AGE OF GOLD.

at 600,000,000 annually. Mr. Lee ofBo~ton, seems to suppose the national capital is not more than 10,000,000,000,
but he increases the national income to 700, or 800 millions. In the Harrisburgh address, drawn up by l\'Ir. Niles,
in 1828, our productive industry is estimated at 1,066,000,000. l"Ir. E. Everett, in his speech of 1830, 'rates our
national income at 1,000,000,000 dollars.
Take the lowest of these estimates; suppose our national capital to be only 10,000,000,000, and our productive
industry only 600,000,000 a year, can we not payoff a
Bank debt of 109,000,000 in ten years?
In every year, the increase of loanable capital in the
country, must exceed the amount of Bank debt it would be
necessary to pay. Private credit would take the place of
Bank credit. If there should be a greater demand for
capital on loan than could be supplied out of the savings
of our own people, capital would flow in abundantly from
Europe.
If the notes should be withdrawn gradually, in the manner here proposed, there is not a solvent Bank, nor a solvent individual, in the country, that could not sustain the
operation. Such are the energies and the resources of the
American people, that it would seem practicable to accomplish the work in half the time we have mentioned. Thpsooner it is accomplished, the sooner will we be delivered
from the evils of our present condition. If, however, ten
years be thought too short a time for the work of reform,
let it be extended through twenty years or through thirty
yean:;. The longest of these is but a short period in the
life time of a na,tion.

CHAPTER XXVI.

Of a New Coinage of Gold.


The money unit of the United States is the dollar, consisting of 416 grains of standard silver, or 371i grains of
pure silver and 34i grains of alloy. All our contracts are
to pay and receive dollars; all our accounts are kept in

NEW' COINAGE OF GOLD.

107

dollars. The dollar is thus our money of both account


and contract, and its legal value is fixed by our having a
coin of the same name, containing the quantity of pure
silver and alloy which has just been mentioned.
Gold is, in the spirit of our laws, a subsidiary currency,
its va.lue being computed in silver dollars. At the United
States :Mint it is rated as fifteen to one-that is to say, one
ounce of gold is considered as worth fifteen ounces of silver; or, what is the same thing, as many grains of pure
gold as are equal to the number of grains of pure silver
contained in a dollar, are coined into an eagle and a half
eagle, and estimated at the mint as worth fifteen dollars.
'1'he market rate of gold to silver, as determined by sales
of gold uullion and silver bullion, in a series of years past,
is about 15.8 to 1. Consequently, if the mint rate corresponded "vith the market rate, the quantity of pure gold
contained in an eagle and a half eagle, ought to be estimated
at the mint at about fifteen dollars and eighty cents.
The undervaluation of gold at the mint, is not the reason that it has disappeared from circulation. Eagles have
disappeared for the same reason that dollars have disappeared. 'Vhenever Bank notes are used, no more specie
is retained in a country than is necessary for transactions
of a smaller amount than the least tlenomination of paper,
and is necessary for meeting the few stray notes that may
be presented to the Banks for payment. It has been found
impossible in England to make ~overeigns and one pound
notes circulate currently; and we all know that small
notes in the Unitetl States }Jave not only driven away gold
coins, but also such silver coins as are of a higher denomination than a half dollar.
If Bank notes had never been introduced, eagles, halfeagles, and quarter-eagles woultl have continued in circulation, notwithstanding the undervaluation of gold at the
mint. The eagle would not have been current at the rate
of ten dolla rs; but at the rate of ten dollars and fifty cents,
ten dollars and seventy-five cents-or whatever else it
would have ueen worth. The calculation of the fraction
would have been productive of some inconvenience; but
the utility of gold coins, ill large transactions, would
hare made them current at a rate probably a little above
that which they have borne in the bullion market.

108

NE'V COIN AGE OF GOLD.

A new gold coinage is desirable; but the proposition to


coin eagles of a less weight than the eagles of former times,
is not entirely free from objection. As all our contracts
are to pay dollars, and as there is no gold at present in circulation, an issue of a new coin, called an eagle, which
should be of the exact value of ten dollars, would cause
no practical injustice. But the issue of a new coin.of different weight from the old, and yet bearing the same name,
might give countenance to the idea that money is something which owes its value to the authority of Government,
and lead, perhaps, at some future time, to an alteration in
the dollar-an alteration in our true standard of value.
The Eagle is the proper name of a coin which contains
247~ grains of pure gold, or 270 grains of standard gold,
of twenty-two carats fineness. A coin which would contain but 234.84 grains of pure gold, or 256.20 grains of
standard gold, ought to be called by another name, and,
to prevent all possibility of mistake, should have a different device. W hen the English ceased to coin pieces containing 118 58-89 grains of pure gold, and began to coin
pieces containing 113 grains of pure gold, they did not
call the new pieces by the same name as the old. But if
the proposition which was laid before Congress, a year or
two since, should be adopted, there will be a greater difference in the weight and value of our new half-eagles and
our old half-eagles, than there is in those of English flovereigns and English guineas.
To atte~pt to fix by law what is not fixed by nature, is
preposterous. Gold and silver vary in value when compared with one another, in the same manner as copper and
iron vary. The variations in the relative value of the precious. metals are, it is true, very small; but in different
epochs of our history, 232, 234, 238, 247, 250, and 252
grains of pure gold may be worth ten silver dollars. If we
should, through all such changes, pertinaciously insist on
coining eagles, adapting the quantity of gold in them to
the varying state of the bullion market, we should have a
dozen different coins, eac.h of a different weight, and yet
all bearing the same name.
As there is little use for a gold coin so small as the quartereagle, and as we have imitated the Spaniards i(l our silver coinage, perhaps it would be judicious to imitate them

NEW COINAGE OF GOLD.

109

in our gold coinage also, and issue American doubloons,


half-doubloons, and quarter-doubloons, of the respective
values of sixteen dollars, eight dollars, and four dollars.
But, if pieces containing five and ten dollars' worth of gold
be preferred, call the ten dollar piece, " the Republican,"
(C the President," or by any name that may please the fancy, except that of "the Eagle." This is a name affixed,
by long usage, to a piece containing neither more nor less
than 270 grains of standard gold, and calling a piece containing a fewer number of grains by the same name, will
certainly lead to confusion vf ideas, and perhaps, at some
future period, to practical injustice.
Whatever kind of new coins may be preferred, it will
be proper to stamp on them the number of grains of pure
gold and alloy that they may contain. Each new gold piece
will then be a primer of political economy, and help in dis5ipating the erroneous ideas entertained respecting money.
It will be quite unnecessary to declare by law, that the new
gold coins shall be a tender in payment of private debts.
People who receive Bank notes at their nominal value, will
not refuse gold at its real value.
To ascertain the quantity of gold it would be proper to
put in the new pieces, nothing more is necessary than to
strike an average of the price gold bullion has borne as
compared with sil\'er bullion, in the principal markets of
the world, during the last ten years. The mint regulations
of different countries, are of no further account than as
they affect the value of gold and silver in the bullion
market.
If, from some error in the data made the basis of the calculation, the gold in the new coins should happen to be rated
a decimal fraction too low, so small an undervaluation
will not cause the coins to be exported. Their utility as
a circulating medium will keep them in circulation, the
issue of five and ten dollar notes being prohibited.
If the gold should happen to be rated a decimal fraction
to high, it will not, as some seem to fear, drive silver out
of circulation. The necessity for silver coins in small payments will cause them to be retained in the country.
Should there be a greater error than a decimal fraction
either too much or too little, in the valuation of gold, the
new coin would continue to circulate, but at a small dis-

110

NEW COIN AGE OF GOLD.

count or a small premium, thus correcting the error of the


mint valuation.
If ono metal be made the standard and the legal tender,
neither gold nor silver can be driven frOIn circulation, except by paper, and paper cannot obtain currency except
through the sanction or the connivance of government.
Gold is undervalued at the French mint, as well as at
our own: but, according to 1\lr. Gallatin, " it is only during
short and extraordinary periods, that the fluctuations have
been so great, as that the gold coins did either fall to the
par of silver coins, or rise to the premium of one per cent.
During by far the greater period of forty-five years~ the premium has fluctuated from one-fifth to one-half per cent. :
so that the variations in the relati ve price of the two metals have, with the few exceptions above mentioned, been
less than one-third per cent." From the result of experience in France, there is every reason to believe, with Mr.
Gallatin, that" the fluctuation in the relative market price
of gold and silver, issued under proper mint regulations,
would be so small a quantity that it might be neglected."
To establish a system of sound currency and sound credit, it is not absolutely necessary to have a new gold coinage. Only let Bank notes be withdrawn, and eagles, halfeagles, and quarter-eagles, will come into circulation, and
pass at their real value. But as four and eight, or five and
ten dollar pieces, would be more convenient than pieces of
the worth of five dollars and the indeterminate parts of a
dollar, or ten dollars and the indeterminate parts of a dollar, a new gold coinage is desirable. It would be attended with injustice to no individual. No seignorage being
charged at our mint, whatever quantity of gold bullion a
man sent there, he would receive back the same amount
in gold coin: and this coin he would pass in the market for
whatever it might be worth.

FISCAL CONCERNS OF THE UKION.

III

CHAPTER XXVI.

Of the Fiscal Concerns of the Union.


In a report to the Senate, by the Committee of Finance,
made March 29th, 1830, it is said" The Government receives its revenue from343 Custom IIouses,
42 Land Offices,
8400 Post Offices,
134 Receivers of Internal Revenue.
37 l\farshals,
33 Clerks of Courts.
"These, with other receiving officers which need not
be specified, compose an aggregate of more than 9000 persons, dispersed through the whole of the Union, who collect the public revenue. From these persons the Government has, for the ten years preceding the 1st of January,
1830, received $230,068,855 17. This sum has been
collected in every section of this widely extended country.
It has been disbursed at other points, many thousand miles
distant from the places where it was collected; and yet it
has been so collected and distributed, without the loss, as
far as the Committee can learn, of a single dollar."
The most difficult point in the business of finance, is to
get possession of money. If this point is attained, the safe.
keeping of the money, the transferring of it from one part
of the country to another, and the paying it away, are easy
undertakings.
If " not a dollar has been lost," it has not been because
the present system contains any extraordinary guards
against malversation. The collectors at our customhouses have the whole amount of money received by them
under their entire control, till it is, at stated times, transferred to the credit of the Treasury Department. Under a
different system, all the public officers at each particular
point might be made checks on one another.
With a sub-treasury office in each State, the safe-keeping and disbursing of the public funds could be effected
without any difficulty; and the expense of each sub-trea-

112

FISCAL CONCERNS OF THE UNION.

sury office need not exceed ten thousand dollars per annum.
If it were necessary occasionally to carry silver from one
part of the country to another, the Government could do it
as easily and cheaply as individuals. 'The whole amount
it would be necessary to transport, would not probably ex~
ceed four or five millions a year, nor the cost go beyond
one per cent. As the principal part of the United States'
revenue is collected in those sections of the eountry which
have usually the rate of exchange in their favor, what the
Government would gain by the sale of bills of exchange in
the West and South, on Boston, New York, Philadelphia,
and Baltimore, would probably exceed what it would be
forced to pay for the transportation of specie.
There is no novelty in this. It is the system of all policed nations except our own. In England, the Bank is
merely auxiliary to the Exchequer and the Treasury. The
revenue collected at Liverpool, is, or was a few years since,
remitted to London through the agency of a private
Banker.
To incorporate a Bank with a capital of ten millions or
of thirty-five miIIions, to endow that corporation with privileges which individuals do not possess, and to Inake its
pap~r receivable in payment of dues to Government, is a
lueasure so wide from the proposed end, that it cannot be
considered " as necessary and proper," or, if the phrase be
preferred, "as natural and appropriate." It is difficult to
believe that it would have been even so much as thougllt oj,
if the measure had 'not in itself been calculated to promote
certain private interests. The natural and appropriate way
of keeping the public funds, is in the Treasury and in
sup-treasury offices. The natural and appropriate way
of transferring them from point to point, is by bills of exchange, and the occasional transportation of specie.
Neither is the establishment of a United States papermoney incorporated Bank, the" necessary and proper,"
or "natural and appropriate" way of correcting the evils
occasioned by the State Banks. A National Bank, resting
on the same principles as the State Banks, must produce
similar evils. It must " contract" and" expand" as well
as they.
If Congress should, from excessive caution, or some less

FISCAL CONCERNS OF THE UNION.

113

commendable motive, delay the passage of the necessary


laws for prohibiting the issue of Bank notes, the "necessary and proper" or "natural and appropriate" way of
regulating the State Banks, would be by declaring that
nothing but gold and silver should be received in payment
ofdues to the Government. The State Banks would then be
obliged to provide a sufficient fund of specie to meet the
demands of the merchants having payments to make to
Government. This wuuld force them to diminish the
amount of notes in circulation. The Government receiving and paying nothing but gold and silver, the people
generally would begin to distinguish between paper and
specie-between cash and credit. Simple as the measure
is, it would double the amount of metallic money in the
country, and prevent, in a great degree, fluctuations of
currency, and oscillations of credit, by taking away one of
the chief causes of the instabil~ty of Bank medium.
The establishing of a paper-money incorporated Bank,
is not the "necessary and proper" or " natural and appropriate" way of enabling Government to borrow when borrowing is advisable. A Bank may, when instituted, lend to
Government its whole capita), or so much, at least, as is
not required for supporting its credit and circulation: but
it is not often that it can, after it has been sometime in
operation, make any great loan to Government, without
either curtailing mercantile accommodations, or issuing
an excess of paper. Nearly all the great "expansions"
and "contractions" that have occurred in both England
and the United States, can be traced to attempts to convert
Banks into fiscal machines. If the operations of Government could be completely separated from those of the Banks,
the system would be shorn of half its evils. If Government
would neither deposit the public funds in the Banks, nor
borrow money from the Banks; and if it would in no case
either receive Bank notes or pay away Bank notes, the
Banks would become mere commercial institutions, and
their credit and their power be brought nearer to a level
with those of private merchants.
Frhe "necessary and proper" or "natural and appropriate" way of placing the financial concerns of the countryon such a basis as will enable us to provide for all exigencies, is to make gold and silver coins the exclusive mo-

114

FISCAL CONCERNS OF THE UNION.

ney of the country. 'Ve shall then be prepared for either


peace or war.
To depend on the Banks in time of war, after the experience of both England and the United States, would be
the height of infatuation. The impression produced on
the minds of men by the suspension of specie payments, is
so fresh, that, on a new declaration of war, it is probable
great part of the deposits would be withdrawn. If the Banks
should escape this evil, the landing of a hostile force of
but a few thousand men on any part of the coast, would
create "a run" which would compel most of them to suspend payment. If Government should, to forward its
financial schemes, sanction or connive at a suspension of
specie payments, it would be instrumental in producing
such evils as we have suffered in past years.
A war imposes on Government the necessity of expending the greater portion of its revenues in a section of country distant from that in which it collects it. The payment
of the war taxes of a singleyear, would deprive great part
of the Union of its specie. The sources of foreign supply
would be cut off, and much of the specie which flowed
from the interior to the fronti.ers, would be exported. It
would not return in sufficient quantities, or sufficiently early
to meet the wants of either the people or the Government.
A vigorous war of but two years continuance, in which
our foreign commerce would be interrupted, must produce
one of two results. It must either compel the Banks to
suspend specie payments, and thus produce evils which no
pen can aueqnately describe; or else force them to curtail
mercantile accommodations, and thus spread ruin through
the community. ".10 sustain the credit of Bank medium, it
would be necessary to reduce it to one-third or one-fourth of
its present amount: and as it would be impossible in a
state of war, ilnmediately to obtain a sufficient &upply of
gold ;lnd silv~r coin, the Government and the people would
suffer all the evils of an insufficient circulating medium.
We have profited in some respects by the experience of
the last war. We have built ships, constructed fortifications, and collected military stores. But" money is the
sinews of war." And it must be real money. Paper money will not then answer. It is not necessary that the real
money should be in the coffers of Government. It is
enough that it is in the pockets of the people.

FISCAL CONCERNS OF' THE UNION.

115

Let Bank notes be withdrawn, and such an accumulation of gold and silver coin will be made by individuals,
that in no possible exigency will there be a real scarcity of
money. This is evident from the condition of certain
countries in which paper money is unknown. In Flanders,
for example, every farmer has a little purse of gold or silver-small in proportion to his property, hut making the
aggregate throughout the country very considerable. Nothing is 105t by this practice. It is impossible to keep the
whole wealth of a country in constant circulation. If a
man's whole stock consists of but two suits of clothes, he
cannot wear them both at the same time. It is of little
moment, as regards individuals, whether their reserved
stock be in money or in those things which money can procure. In a national point of view nothing is lost by this
It ensures the punctual performance of concustom.
tracts. No man has to call twice on a farmer in FIan...
clers, for the paym-ent of a debt. 'Vhatever may be the vicissitudes of war or of commerce, there is never in that
country a scarcity of the tool of all trades.
We have that amount of metallic money in the United
States which is barely sufficient, in the most favorable
state of things, for daily exchanges, and which would not
answer even in the most favorable state of things, if we
had not various modes of barter, and different credit contrivances. As much time is lost every year, in " dunning
for debts," as would, if properly employed, purchase some
millions of metallic medium. Let the natural order of
things be restored, and a sufficiency of metallic money will
be collected, to enable the country to bear transitions from
peace to war, and to answer all the demands of commerce,
both ordinary and extraordinary. As it is the custom of
all prudent families in rural districts, to have on hand a
greater quantity of flour and other necessaries, than is
required for the use of the twenty-four hours, so it will become the custom for each prudent family to have a little
money in reserve. Out of this stock, the war taxes will be
paid, and before the original stock is completely exhausted,
a portion of it will come back to them in the regular course
of trade.
Few people are more able than those of the United
States to contribute what is necessary for the defence of

116

BANKING IN PROPER PRINCIPLES.

their country. Few people-if we had a proper money


system, would be more willing. Ask the farmer, if, in a
war undertaken in a just and righteous cause, he would
not be willing to contribute a certain number of bushels of
wheat, to vindicate the honor of the nation or secure its
safety. Ask the shoemaker, if he would not be willing to
contribute a certain number of pairs of shoes. Ask the
day laborer, if he would not be willing, in such a contingency, to labor a certain number of days on the fortifications. Now, what a nation actually consumes in the
course of a war, is labor and the products of labor: but
the taxes cannot be conveniently collected in kind, and to
collect them in money is impossible, for the people have it
not to give.
Let those obstacles be removed which prevent our acquiring such a stock of metallic money as is adapted to
varying exigencies, and in times of hostilities, neither productive industry nor commercial credit will be affected
more than is necessary by the incidents of war. In this
condition of things, the Government could easily raise considerable sums by taxation. If it chose to borrow, the negotiation of its loans would not, as in the last war, derange
the whole train of mercantile operations. Simply by collecting taxes enough to pay the annual interest, it could
borrow to any desirable extent. If the loanable capital
of our own country were not sufficient to meet its wants,
it would have the market of the world froln which to supply the deficiency.
But, let the present system continue, and, in a state of
war, the Government must get into financial embarrassments, in attempting to extricate itself from which it will,
as in the last war, involve thousanda in ruin.

BANKING ON PROPER PRINCIPLES.

117

CHAPTER XXVIII.

Of Banking on Proper Principles.


There is nothing novel in the modern system of Banking, except its being carried on by corporations and by the
instrumentality of paper money.
Private Bankers were known to the Greeks, the Romans and the Jews. At Rome, especially, they appear to
have been very numerous, and to have done an extensive
business. The shops round the Great Forum were chiefly
occupied by them, and we may learn from Cicero and
other ancient authors, that the Romans commonly paid
money by their intervention. A Roman would sometimes
give an order, or, as we should say, draw a check on his
Banker: but the usual way of managing pecuniary transactions, was by writing their names in the BankerJs books.*
Previous to the establishment of the Bank of England,
the goldsmiths of London performed most of the functions
of Bankers. To those who deposited money with them,
they sometimes aIlowed six per cent. interest but the usual
rate did not exceed four per cent.
In Virginia, as is stated by a writer in the Richmond
Enquirer, the merchants formerly acted as Bankers. to the
planters. Governor W olcot, in his Message to the Legislature of Connecticut, in May 1826, ~ays that" private
Banks existed in this country before and a short time
subsequent to the Revolutionary War."
As a country advances in wealth and population, the
business of dealing in money naturally becomes a distinct
profession. It is a business which requires no laws for its
special encouragement: no charters to cause it to be conducted to the public advantage. The trade in money is
as simple in its nature as the trade in flour or the trade in
tobacco, and ought to be cond ucted on the same principles.
Restore the natural order of things, by abolishing money
corporations, and, in those parts of the country where
there is little popUlation, little wealth, and little commer~e,
there will be little Banking: while in those parts of the
J

if "In foro, et de mensre scriptura, magis quam ex arca domoque, vel


cista pecunia numerabatur."- Terrence.

118

BAN KING ON PROPER PRINCIPLES.

country where commerce is extensively carried on, Bankers


will rise up in proportion to the wants of the communIty.
In most villages, all the call there is for Bankers could
be answered by the Postmasters. Offices of deposit, of
transfer, and of loan, are not necessary in villages. The
onl)' call there for a dealer in money, is to collect debts
due to persons at a distance, and transmit the money to
to whom it is due. The publishers of periodicals now
collect great part of what is owing to them on account of
SUbscriptions through the medium of the Postmasters.
Many of the debts due to merchants might be conveniently collected in the same way, if Government were careful
to appoint none but solvent and trust-worthy persons to be
Postmasters: and if it should make a rule to remove them
on proof being given of their having neglected to pay
over money which they had collected.
But it would not be necessary for Government to go even
this far, for us to have a good Banking system. The
Postmaster, in most small towns, would stand the best
chance of becoming collector of debts for persons at a distance, and the commissions he would receive would, in
many cases, exceed the amount paid to him as a public
officer: but if he was found untrustworthy, or incapable,
the business would be transferred to the storekeeper, or
some other respectable inhabitant of the village.
In the larget towns, and even in the small towns which
are centres of wealthy districts, the business of dealing in exchanges, and of acting as an agent between lenders and
borrowers, would become a distinct profession.
In each city the number of Bankers would be in proportion to the amount of business to be ~one, and their
capital in proportion to the trade of the city. A merchant
of Philadelphia who wished a note discounted, would, instead of having his choice among a dozen corporations,
have his choice among perhaps twice that number of private Bankers. Instead of being obliged to approach the
supercilious Director of seme overgrown monied institution, he would deal with a private trader,to whom it would be
of as much importance to lend as it would be to himself to
borrow. The extent of business these private Bankers would
do, would depend, in a degree, on the disposition they
showed to accommodate their customers. The competition

BANKING ON PROPER PRINCIPLES.

II!)

amongst them would be so lively, that, after the manner of


the Banken of Europe, they would allow a credit on deposits. Being responsible in the \vhole amount of their
private fortunes, they would seldom extend their Joans so
far as to cherish the wild spirit of speculation. Their
whole fortunes would be in the business, and their whole
faculties exerted for its proper management, and it is in
this way only that any business can be well conducted.
If there should be a necessity for placing any restrictions on these private Bankers, it \vould be simply that of
restraining them from issuing notes, bills, or checks, which
would circu!ate in the same way as the present Bank notes.
Some intelligent men who have turned their attention to
the subject, think that even this would not be necessary.
They are of opinion that the competition among private
Bankers would be so brisk, that they would effectually
check one anothel.
In opposition to this it may be urged, that much has been
lost by the breaking of private Bankers in England; though
it must be admitted, this is not a case exactly in point,
since the private Bankers of England are influenced in
their operations, though not regulated, by the great corporate institution of that kingdom.
In Scotland, where the private Banks have the predominance, little has been lost by the breaking of these institutions. But, the evils produced by the occasional breaking
of a Bank, are far from being the greatest evils of the system. No instance has occurred of a Bank breaking in
Philadelphia, and yet who can adequately describe all that
the people of this city have endured from Banking. We
have satisfactory evidence that the Scotch Banks, by their
"expansions" and" contractions," produce evils, the same
in kind, though not in degree, as are felt in Philadelphia.
But in neither England nor Scotland, can we, perhaps,
be said to have a fair example of private Banking, as the
Government receives Bank notes in payment of taxes.
When the Government receives one kind of paper, the
people lose their clear perception of the difference between
cash and credit, and where room is made in this way for
the circulation of paper, the most worthless kind sometimes
obtains circulation as easily as the best. "Numberless instances," says the Edinburg Review, "have occurred in

120

BANKING ON PROPER PRINCIPLES.

the history of British Banking, within the last few years,


in which the notes of individuals without any real capital,
and who were from the beginning in a state of insolvency,
have continued to circulate for a long period in company
with the notes of the best established houses, and to enjoy
an equal degree of credit."
The privat.e Bankers on the continent of Europe do not
circulate any paper, but it is not in cur power to say, whether this is, in all instances, owing to obstacles thrown in
their way by Government, or to the indisposition of the people to receive paper where it is not taken in payment of
taxes.
If notes issued by private Ba,nkers should circulate as
the notes of the present corporations, they would become
money. As a credit money, they would necessarily fluctuate in quantity. It is not. desirable that, in addition to
changes in the state of credit, proceeding from great natural or political causes, we should have changes in the cur
rency, to add to the uncertainty of trade.*
If these notes produced no other C\'i1, they would prevent
us from accumulating that stock of metallic money, which
is required for the varying exigencies of peace and war.
After this had been for a time ill circulation, the receiving
of them would be, as in the case of the present Bank notes,
a matter of necessity rather than of choice.
The evil would, indeed, in time, correct itself; but if
we can prevent it, why suffer it at a111t
if "Hitherto," say~ Tooke, " the Legislature has restricted individuals, under the severest penalties, from establishing private mints, and
uttering metallic money of intrinsic and discreditable value j yet, with
a degree of lllconsistency which strikes us as most extraordinary
the more attenti\'ely we consider it, our law-mal<ers have permitted
individuals to establish private Banks of circulation-and to utter paper money, possessed of only a conventional value, which a b'1cath of
pa'nic may at any time destroy. On the same prmciple that the Government protects the public against the probable insecurity which might
arise from individuals being permitted to utter metullic currency, it
should guard against the more probable, nay artain insecurity which is
created when individual.,; utter a paper currency. In every civilized
country, supplying and regulating the criculating medium is a function of the sovereing prerogative.

t \Vhat is here advanced is not at variance with the principles of


Adam Smith, as will be seen by the followin~ extract from his writings:
"To restrain private people, it Ulay be said, from receiving in pay-

BANKING ON PROPER PRINCIPLES.

121

We can certainly carry the credit system far enough, by


the agency of leger entries, notes of hand, bills ofexchange,
and bonds and mortgages. We do not require the additional aid of credit money, to run us deeper in debt.
Why should a private Banker, having a capital of his
own of five hundred thousand or a million dollars, and deriving therefrom an income of thirty thousand or of sixty
thousand per annum, desire to double his income, by the
circulation of paper money? fIe would make a legitimate
use of his credit, in receiving Inoney on deposit, at five per
cent., and lending it agaIn at six per cent. More than
this he ought not to desire.*
If the capital of a private Banker is small, he will derive
as much profit from his credit as he is justly entitled to: in
his commission on bills of exchange, and in the difference
between the rate he will pay for money taken by him on
deposit, and that at which he will lend this money to others.
The issue of notes by Bankers, for the convenient discharge of their own business, will not be necessary. The
private Bankers of London and Lancashire issue no notes.
At the clearing-house in London, in which their accounts
ment the promissory notes of a Banker for any sum, whether great or
small, when they themselves are willing to recpive them; or, to restrain
a Banker from issuing such notes, when all his neighbors are willing
to accept them, is a manifest violation of that n:lturalliberty which it is
the proper business of law not to infringe but to support. Such regulations may, no doubt, be considered as in some respect a violation of
natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are,
and ought to be, restrained by the laws of all governments: of the most
free, as well as of the most despotical. 'l'he obligation of building party walls, in order to prevent the communication of fire, is a violation of
natural liberty, exactly of the same kind with the regulations of the
banking trade which are here proposed."
The proposal Adam Smith here supports, is that of prohibiting private
Bankers from issuing notes of a less denomination than five pounds sterling, nearly twentyjive dollars Federal money. On the principles on
which he proposes to prohibit the issue of notes of some denominations,
the issue of notes of all denominations may be prohibited.

* "There is no more reason why a man, or body of men, should be


permitted to demand of the public, interest for their reputation of being
rich, than there would be in permitting a man to demand interest for the
reputation of being wise, learned, or brave. If a man is actually rich,
it is enough for him to receive interest for his money, and rent for hia
land, without receiving interest for his credit also."-Raymond.

122

BANKING ON PROPER PRINCIPLES.

are daily settled by an exchange of checks, transactions to


the amount of four or five millions sterling are adjusted
with the help of about two hundred thousand pounds in
money.
If arrangements of this kind were not found to answer
the desired end, a public Office of Transfer and Deposit
might be established in each city, on the model of the
Bank of Hamburg, with the exception of buyiqg and selling bullion and dealing in exchange, which ought to be
left to private Bankers. The establishing of such an Office would be attended with a little ~xpense, but ifit would
not be worth paying for, it would not be worth having. If
the Bankers objected to paying all the e~pense, the Government might, as such an office would be a safe and convenient depository of the public funds, share the expense
with them. There is nothing in the constitution to prevent the establishment of pubric Banks, which shall be
mere Offices of Deposit and Transfer. And as such Banks
would be a great public benefit, the defraying oftheir necessary expenses out of the public revenue would not be objectionable.
In this way, we should secure all the advantages the
present system affords, and avoid all its disadvantages.
We should have places of deposit safer than the present;
for the money deposited in a public Bank by one man
would not be lent to another.
The business of settling accounts by transfers of credit,
would be greatly facilitated. One public Bank would suffice for each city, and the time \vhich is now lost in running from Bank to Bank, would be saved.
The private Banks, paying interest on deposits, would
extend throughout the country the advantages of Saving
Banks.
Men who wished to borrow, would deal with a private
Banker as an equal, instead of dealing, as at present, with
an overgrown corporation. as a superior.
The business of dealing in exchange, would be better
conducted than at present, for it ,,,auld be left free to individuals, and they would show the same disposition to
oblige and to give satisfaction, that is now evinced by the
dry goods merchant, or the importer of groceries.
Instead of having to pay the expense of three or four

COr\SEQUEXCES OF THE PRESENT SYSTEj)I.

123

hundred public Banks, we should have to pay the expense


of only twenty or thirty, for this number of offices of deposit and transfer would suffice for the whole United States.
\Ve should escape all the evils that flow from Banks as
corporations, from fluctuations ef the circulating medium,
and from the false system of credit which has its origin in
the present banking system.
And what should we lose? The supporters of the present system admit that" the only substantial advantage attending paper money appears to be its cheapness." Taking their own estimates of the amollnt of Bank notes and
Bank credits, the sum thus gained does not amount to
more than forty cents a year for each individual in the nation. Is it worth while for so trifling a gain, (admitting it,
by way of argument, to be a gain,) to endure all the evils
of a bad system, and forego all the ad vantages of a good?

CHAPTER XXIX.

Probable Consequences of tlte Continuance of tlte Present


System.
To infer that because a system produces great evil, it
must soon give way, would be to argue in opposition to all
experience. If mere suffering could produce reformation,
there would be little misery in the world.
Too many individuals have an interest in incorporated
paper money Banks, to suffer the truth in relation to such
institutions to have free progress. Too many prejudices
remain in the minds of a multitude who have no such
interest, to permit the truth to have its proper effect.
It is, therefore, rational to conclude that the present system may, at least with modifications, continue to be the
system of the country-not for ever, as some seem to think,
but for a period which cannot be definitely calculated. It
is also rational to conclude that the effect it will have on
society in tnne to come, will be similar to the effect it has
had in time past. We have, then, in the present state of
the country, the means of judging of its future condition.
No system of policy that can be devised, can prevent

124

CONSEQUENCES OF THE PRESENT SYSTEM.

the United States from advancing in wealth and population. Our national prosperity has its seat in natural causes
which cannot be effectualJ.y counteracted by any human
measures, excepting such as would convert the Government into a despotism like that of 'furkey, or reduce the
nation to a state of anarchy resembling that of some countries of South America.
Our wealth and population will increase till they become
equal for each square mile to the wealth and population of
the continent of Europe.
We are now very far from this limit. Under a good
system, we cannot reach it in less than one or two hundred years. Under a bad system, in not less, perhaps, than
three or four hundred.
If we had a political system as bad as that of Great Britain, with its hereditary aristocracy, its laws of entail and
primogeniture, its manufacturing guilds, its incorporated
commercial companies, its large standing army, its expensive navy, its church establishment, its boroughmongering,
its pensions and its sinecures, our advancement would be
seriously retarded. But our wealth and population would,
notwithstanding, continue to increase, till they should bear
the same ratio to the natural resources of the country, that
the wealth and population of Great Britain have to the
natural resources of that island.
The progress of opulence in the United States in the
next forty or fifty years, will probably be very great. Many
of the natural sources of wealth are as yet unappropriated.
In no part of the country has their productiveness been
fully developed. The people have now sufficient capital to
turn their land and labor to more profit than was possible
in any previous period of our country's history.
The daily improvements in productive machinerYJ and
especially in the application of steam power, the discoveries in science, the introduction of new composts and new
courses of crops in agriculture, the extension of roads ana
canals, have all a tendency to increase the wealth of the
country, till the aggregate shall be enormous,
But this increase of wealth will be principally for the
benefit of those to whom an increase of riches will bring
r:o increase of happiness, for they have already wealth
enough or more than enough. Their originally small capi-

CONSEQUENCES OF THE PRESENT SYSTEM.

125

tals have, in the course of a few years, been doubled,


trebled, and, in some instances, quadrupled. They have
now large capitals, which will go on increasing in nearly
the same ratio.
As no kind of property is prevented from being the prize
of speculation by laws of entail, it is not easy to set bounds
to the riches which some of our citizens may acquire.
Their incomes may be equal to those of the most wealthy
of the European nobility. 'I'hink, for a moment, of the
immense accession of wealth certain families in the neighborhood of large cities and other improving towns must
receive, from the conversion of tracts of many acres into
building lots. For ground which cost them but one hundred dollars an acre, they may get ten thousand dollars,
twenty thousand dollars, or twenty-five thousand dollars.
This will be without any labor or expenditure of capital on
their part. The land will be increased in value, by the
improvements made around it at the expense of other men.
But this is but one of the ways in which the wealth of
the rich will increase. It has heretofore been found that
capital invested in lots, even in the neighborhood of the
most flourishing towns, doubles itself less rapidly than
capital devoted to other purposes of speculation. In whatever way it may be employed the capital of the rich will,
in the aggregate, increase in nearly the ratio of compound
interest.
The vicissitudes of fortune will be, as they ha \'e been in
past years, many and great, but they will tend to increase
the inequality of social condition, by throwing the wealth
of several rich men into the hands of one. It is seldom
that the vicissitudes of fortune distribute the wealth of a
few among the many.
An increase in the number of Banks must be expected.
If the system is to be perpetual, an increase in the number
of these insititutions would not, in borne respects, be an
evil; for seven hundred Banks could circulate no more
paper than three hundred and fifty. But every new Bank
is a new centre of speculation; and one kind of stock-jobbing gives birth to another. We shall have new schemes
for growing rich without labor-similar perhaps to the Briitsh bubble companies of 1825-perhaps to the former
speculations in Washington City lots-perhaps to the recent

126

CONSEQUENCES OF THE PRESENT SYSTEM.

speculations in Pennsylvania coal lands. The present rage


for rail-road stock shows that part of our population already
want something to be crazy about----or rather want something by which to set their neighbors crazy. The old
modes of speculation no longer afford full employment for
their time and talents.
Nearly all the secondary operations of society will tend to
increase the disparity between the rich and poor as different classes of the community, and not a small proportion
of the rich will, in due time, become as luxurious and as
corrupt, as ostentatious and as supercilious, as the "first
circles" in the most dissipated capitals of Europe.
Their early habits of industry and economy cleave to
some of the rich men of the present day. Hence they are as
useful and, as modest members of society as many who are
in moderate circumstances. But when their immense
wealth passes, as pass it must in a few years, to their heirs,
who know not the value of money, because they never
knp.w the want of it, it will be lavished in every way which
corrupt inclination can dictate.
While some will be enormously rich, there will be a considerable number in a state of comfort, as in Great Britain,
and very many in a state of disconsolate poverty. Some
years must, indeed, elapse, before the number of paupers
anu criminals, and of persons whose condition borders on
pauperism, will bear the same proportion to population in
Europe and America. In our immense extent of uncultivated land, the poor have a place to fly to; but the spirit
of speculation will follo\\i them there. We need not wait
till the country is fully peopled to experience a measure of
these evils. While some parts of the Union will have all
the simplicity, the rudeness, and the poverty of new settlements; others will exhibit all the splendor and licentiousness, and misery and debasement of the most populous
districts of Europe.
'rhe beginning of this state of things is already observable. According to the estimates of Mr. Niles, the number
of paupers in the maratime counties of the United States,
was, in 1815, in the proportion of one to every 130 inhabitants; and, in 1821, in the proportion of two to every J30.
The published accounts do not give the number of persons admitted into the almshouses or committed to the pri-

CONSEQUENCES OF THE PRESENT SYSTEM.

127

sons of Philadelphia, in the course of the year; but the


number of commitments of criminals and vagrants amounts
to three or four thousand annually, and the number of
admissions into the alms-house is equally considerable. As
the same person may be admitted or committed several
times, we cannot give the exact number of either pau pers
or criminals. But at one time last winter, there were upwards of sixteen hundred poor persons in the Spruce
Street Alms-house; and mauy more were receiving outdoor relief.:I
In some years the public expenditures on account of the
poor in Philadelphia, exceed the expenditures on the same
account in Liverpool.
Some of the members of a Comm~ssion appointed about
twelve years ago to inquire into the ca uses and extentofpauperism in Philadelphia, estimated the cost of relieving the
poor at between four hundred and five hundred thousand
dollars a year. In this estimate was included what is
given in private charity, as well as what is given in public:
and an allowance was made for rent of almshouses and
hospitals, or for interest on the first cost of land and buildings set apart for the use of the poor. At that time the
population of the city and suburbs did not much exceed
one hundred and twenty thousand.
We may increase the legal provision for the relief of the
indigent, and multiply alms-houses and hospitals. But nothing of this kind can supply the want of just laws and of
equal institutions.
Efforts may be made in various ways to diffuse the blessings of education, and to promote moral and religious improvement. But these efforts will only alleviate our social
evils: They cannot cure them.
In no small degree will the public distress be increased by
well-meant but ill-directed attempts to give relief. There
is a class of politician5, (and they are unfortunately numerous and powerful,) who have for each particular social
evil a legal remedy. 'rhey are willing to leave nothing
to nature: the law must do every thing.
This is, most unfortunately, the kind of legislation which
"'" Part of this pauperism and criminality mnst be attributed to European institlltion~, as the character of the subjects was formed before
they migrated to America. Another part is of domestic origin.

128

EFFECTS OF A SOUND CURRENCY.

public distress is almost sure to produce. Instead of tracing its cause to some positive institution, the removal of
which, though it might not immediately relieve distress,
would prevent its recurrence, men set themselves to heaping
law upon law, and institution upon institution. They in
this resemble quacks who apply lotions to the skin to cure
diseases of the blood, or of the digestive organs, occasioned
by intemperate living.
These projects of relief and efforts at corrective legislation, will be numberless in multitude and diversified in
character: but as they will not proceed on the principle of
" removing the cause that the effect may cease," they will
ultimately increase the evils they are intended to cure.

CHAPTER XXX.

Probable Effects of tlle Establishment of a System of


Sound Ourrency and Sound Credit.
The laws which govern the moral world are just as certain in their nature as those which govern the physical: but it is not al way~ easy to fortell the effects of a political measure, because it is not easy to foresee the precise
combination of causes that will be in operation at any
future period. David Hume reasoned with perfect correctness from the permises before him, when he predicted
that an increase of the national debt beyond a certain
amount would make the British Government bankrupt.
But he did not foresee the great increase of wealth, and consequent increase of ability in the people to bear public
burdens~ which has been caused by the use of steam and
of productive machinery; and the Government has swelled
the debt beyond the amount he fixed upon, without becoming bankrupt.
As we ,have neither a large standing army nor an ex..
pensive navy, neither King nor titled nobility to support,
neither sinecurists nor pensioners to pay, it would seem
rational to believe that, on the destruction of the monied
corporation system, honest industry in the United States
would be secure of its reward. But it is, perhaps, tpo
soon to assert that the ingenuity of those who wish to grow

129

EFFECTS OF A SOUND CURRENCY.

rich by the labor of others wi!! then be exhausted. The


Banking system destroyed, they may invent some other,
equally plausible and equally pernicious.
There has been at least an apparent improvement in the
moral sentiments of men. About three centuries ago, it
was customary to insert in the treaties between Christian
Kings, a stipulation that the subjects of one King should
not plunder the subjects of another, on the high seas, in
time of peace-in other words, it was made matter of express covenant that merchants should not be pirates. At
a much later period, many Scottish gentlemen thought it
quite as honorable and as honest to levy" black mail" on
the estates of their neighbors, as to levy rents on their
own estates.
Some intelligent writers seem to be of opinion, that the
improvement in moral sentiment is rather apparent than
real. There is, they assert, so much less personal risk
ip certain modern modes of acquiring wealth, that men can
fay little claim to merit because they do not carry off their
neighbors' cattle by force of arms, or rob ships on the high
seas. Lord Byron appears to have been of this way of
thinking, for he said that" if the funds failed, he meant to
take to the high-way, as he considered that the only honorable mode of making a living, now left for honest men."
1I For why?
The good old rule sufficeth still,
The simple planThat they shall take who have the power,
And they shall keep who can."

" Many ingenious men" says an American author, have


amused themselves and others, in forming theories respecting the social compact. Some supposed it to originate in
one way, some in another. Some supposed it to have been
formed for one purpose, some for another. It is supposed
by some to have been formed for defence-others suppose
it to have been formed for aggression. It is true, that every
thing on this subject is mere speculation; and one man has
as much right to form theories as another, but it is very
clear, that aggre5~ion must precede defence, and that before communities could have been formed for defence, there
must have been others formed for aggression. Had there
been no such thing as attack, men would never have thought
(r

130

EFFECTS OF A SOUND CURRENCY.

of defence. The primary object, therefore, in forming the


social compact, must have been plunder; and the first article of that compact no dOll ht was, "we will plunder our
neigllbors." The second article probably was, " We will
not plunder eaclz other." This article was necessary to enable them to carry the first into effect.
"The first article in the social compact has been faithfully executed, as far as it was practicable. q-'he second
article has been and still is evaded, or forcibly violated, by
a large portion of every community. How many people do
we see in every community, who, instead of supporting
themselves by their own industry, contrive to supply themselves with the necessaries and comforts of life, from the industry of others? Some do this by fraud and overreaching.
Some by direct violence-some by the exercise of their wits
in one way, some in another. Some by the permission, or
the express provision, of the la \V-others in violation of it.
What a host would there be, if all the people in the United
States even, who live by the labor of others, were collected
together.
" 'I'he history of mankind, in all ages of the world, shows
that they will never labor for subsistence, so long as they
can obtain it by plunder-that they will never labor for
themselves, so long as they can compel others to labor for
them."*
This is a gloomy view of things: and we cannot say
that we assent to its correctness in every particular. We
trust there has been, in the last three centuries, some real
improvement in the min~s of men. Yet history and experience both show that there is a strong principle of evil
which shows itself in different forms in different men, and
which changes its appearance in communities with change
of circumstances.
As this principle is found in Americans as well as in
Europeans and Asiatics, we may rest assured, that, if the
money corporation system shall be abolished, attempts will
be made, under the plausible pretext of promoting the public good, to have other laws passed, and other institutions
established, which will give to some members of the community advantages over the rest. The attempts of this
-If

Raymond. Elements of Political Economy.

Baltimore 1823.

EFFECTS OF A SOUND CURRENCY.

131

kind will probably be numerous, for even those who apparently pay most regard to the principles of natural justice,
think themselves fairly entitled to such advantages as the
law gives them, and deem it quite proper to endeavor to
advance their private speculations by procuring legislative
enactments in their especial favor. If these attempts shall
be successfully resisted, we may rationally expect-being delivered from the curse of paper money and of moni~d corporations-a considerable improvement, in the following
particulars.
1. The dp.mand for most articles of commerce and manufactures wiIJ become regular, and the supply will conform
itself to the demand, the variations being seldom so sudden or so great as to prevent men of good common sense
from managing their business successfully. At present,
men find it difficult to make the operation of the natural
causes that affect supply and demand the basis of an estimate, in engaging in any enterprize, because these causes
are confounded with others growing out of the present system of business.
2. Bankruptcies will be as rare as they were before the
Revolution, and losses by bad debts will be inconsiderable.
l\lore or less uncertainty will always attend foreign commerce.
Events which may happen abroad may, from
time to time, have an injurious effect on bodies of merchants engaged in a trade with particular countries: but,
as is correctly observed by l\1r. Gallatin, the effects of commercial revulsions in a country having a metallic currency,
are generally confined to dealers, extending but indirectly
and feebly to the community, and never affecting the currency, the standard of value, or the contracts between persons not concerned in the failures.
3. The yalue of that which forms~ the principal item of
wealth in every country, the land and its improvements, is
affected slowly by natural causes. It seldom rises or falls,
except in particular situations, more than one or two per
cent. in the course of a year. Such variations would not
be great enough to prevent the majority of men from forming correct estimates of the value of real estate: and as
there would be a continuous rise in the value of land, with
the increase of wealth and population, sellers would be
quite secure in receiving one-fourth of the purchase money

132

EFFECTS OF A SOUND CURRENCY.

and a mortgage for the remainder, and buyers would run


little risk of losing, from a fall in the price of property.
The special causes which would affect the value of lands in
particular localities, might be estimated with some degree
of exactness.
4. The prices of land and commodities being left to the
regulation of natural causes, it would, in most instances,
be easy to form a judgment of the probable result of differ..
ent undertakings. The risk, in the great majority of enterprizes, would not be greater than that of the farmer
when he ploughs and sows his fields. It would be easy to
tell what businesses are adapted to the state of the country, and to different parts of the country. The developement of the natural sources of wealth would proceed in
natural order, and men would grow rich, not by impoverishing others, but by the same causes that enrich na.
tions.
5. Credit would be diffused through the community,
and each man would get that share to which he would be
justly entitled. The thrifty young mechanic, and the industrious farmer, though not possessed of real estate, would
be able to borrow on bond, for such periods as might be
necessary to bring their little undertakings to a successful
issue.
6. Every increase of capital increasing the fund out of
which wages would be paid, would increase the reward of
the laborer. Through the new distribution of capital which
would be produced by a just apportionment of credit, the
number of the competitors of the working-man would be
diminished, and the number of his employers increased.
He would thus reap a double advantage, from the increase of competition on the one side, and its decrease on
the other.
7. The present order of things, by rendering the condi..
tion of some members of society almost hopeless, takes
away from them almost every inducement to industry and
economy. They labor only from the stimulus of necessity;
and if, in particular seasons, they obtain more than is necessary for immediate subsistence, they expend it in procuring some sensual gratification. But, open to these men
a fair prospect of acquiring a little property and of being
secure in its possession, and many who are now indolent

EFFECTS OF A SOUND CURRENCY.

133

will become industrious, and many who are extravagant


will become economical. Give them an object worth working and saving for, and but few, even of those who are
least gifted with natural prudence, will become a burden
to their friends, or to the public.
8. The moral character of a great part of the nation has
been stamped so deeply by causes which have been in
operation for half a century, or for nearly a century and a
half, if we count from the first issue of paper money by
Massachusetts, that many years perhaps, will, elapse, before it can be essentially changed. But one of the first
effects of abolishing the money-corporation system, will be
that of raising the standard of commercial honesty in a
perceptible degree, and the standard of political honor will,
in a few years, be sensibly elevated.
9. In a state of things in which industry was sure of its
reward, few persons would be destitute of the pecuniary
means for obtaining instruction. The intellectual powers of
the great body of the people would then be fully developed,
and this could not fail to promote the correct management
of public and private affairs.
10. The causes of evil are as numerous as the varieties
of evil. The Banking system must be regarded as the
principal cause of social evil in the United States; but it
is by no means the only one. There are other positive institutions in our land which are very pernicious. Remove
the Banking system, and the extent in which most other
evil institutions operate, will become evident. The application of the proper remedies will then be an easy task.
In the best social system that can be imagined, that is,
in one in which there should be no laws or institutions of
any kind except such as are absolutely necessary, and in
which the few laws and institutions which are really
necessary should be perfectly just in principle and equal
in operation, there would necessarily be an inequality in
the condition of men. It would proceed in part from differences in mental and bodily strength, in skill, in industry,
in economy, in prudence, and in enterprize. In part, it
would proceed from causes beyond human control. But
this would be a natural inequality, and it would not be an
evil. The sight of one man enjoying the reward of his
good conduct, would induce others to imitate his example.

134

EFFECTS OF A SOUND CURRENCY.

We have evidence in the condition of Switzerland and


Holland, of what patient industry can accomplish. One
of these countries is mountainous and rugged; the other
is a marsh, great portion of whIch has been reclaimed from
the sea. Yet they are, in proportion to the number of
square miles they contain, among the richest countries in
the world.
In Switzerland there are, or were till lately, many absurd restrictions on the liberty of the people. The national
debt of Holland is very great, and the taxes are consequently heavy. Switzerland is an inland country, and has
intercourse with distant nations, through the permission of
the neighboring kingdoms. It owes its independence to
the sufferance of its powerful neighbors. Holland is frequently devastated by hostile armies. It is not free from
commercial monopolies. In both Holland and Switzerland
there is an inequality of political rights quite incompatible
with our American ideas of natural justice. Yet, under
all these disadvantages, natural and political, Holland and
Switzerland have arrived at a degre.e of improvement whcih
excites the admiration of every candid observer.
Now, if the Union of the States can be preserved, to
what may we not rise, under our free political institutions,
with the immense extent of our natural resources, with all
our advantages for foreign and domestic trade, and exempted as we are by our situation from a participation in the
wars of Europe.
It would really appear that, if we could only get rid of a
few laws and institutions which give advantages to some
men over others, we might arrive at a state of improvement
which would surpass that of any country of which mention
is made in history. We have more means of happilless within our reach, than any other people. If we turn
them not to a good account, the fault will be our own, and
we must patiently bear the consequences.

SUMMARY.

135

CHAPTER XXXI.

Summary.
ffo place the subject fairly before the reader, we shall
bring together the principal propositions that have been
supported in this essay, and leave the decision to his can~
did judgment.
We have maintained:
1. That real money is that valuable by reference to which
the value of other articles is estimated, and by the instrumentality of which they are circulated. It is a commodity,
done up in a particular form to serve a particular use, and
does not differ essentially from other items of wealth.
2. That silver, owing to its different physical properties,
the universal and incessant demand for it, and the small
proportion the annual supply bears to the stock on hand,
is as good a practical standard of value as can reasonably
be desired. It has no variations except such as necessarily
arise from the nature of value.
3. That real money diffuses itself through different countries, and through different parts of a country, in proportion to the demands of commerce. No prohibitions can
prevent its departing from countries where wealth and
trade are declining; and no obstacle, except spurious money, can prevent its flowing into countries where wealth
and trade are increasing.
4. That money is the tool of all trades, and is, as such, one
of the most useful of productive instruments, and aIle of
the most valuable of labor saving machines.
5. That bills of exchange and promissory notes are a
mere commercial medium, and are, as auxiliaries of gold
silver money, very useful: but they differ from metallic
money in having no inherent value, and in being evidences
of debt. The expressions of value in bills of exchange and
promissory notes, are according to the article which law or
eustom has made the standard; and the failure to pay bills
of exchange and promissory notes, does not affect the
value of the currency, or the standard by which aU contracts are regulated.
6. That Bank notes are mere evidences of debt due by

136

SUMMARY.

the Banks, and in this respect differ not from the promissory notes of the merchants; but, being received in full of
all demands, they become to all intents and purposes the
money of the country.
7. That Banks owe their credit to their charters; for, if
these were taken away, not even their own stockholders
would trust them.
8. That the circulating quality of Bank notes is in part
owing to their being receivable in payment of dues to go\'ernment; in part to the interest which the debtors to
Banks and Bank stockholders have in keeping them in
circulation; and in part to the difficulty, when the system
is firmly established, of obtaining metallic money.
9. That so long as specie payments are maintained, there
is a limit on Bank issues; but this is not sufficient to prevent successive" expansions" and "contractions," which
produce ruinous fluctuations of prices; while the means
by which Bank medium is kept" convertible" inflict great
evils on the community.
10. rrhat no restriction which can be imposed on Banks,
and 110 discretion on the part of the Directors, can prevent
these fluctuations; for,Bank credit, as a branch of commercial credit, is affected by all the causes, natural and
political, that affect trade, or that affect the confidence man
has in man.
11. That the" flexibility" or " elasticity" of Bank medium is not an excellence, but a defect, and that" expansions" and" contractions" are not made to suit the wants
of the community, but from a simple regard to the profits
and safety of the Banks.
12. That the uncertainty of trade produced by these
succe3sive "expansions" and " contractions," is but one
of the evils of the present system. That the Banks cause
credit dealings to be carried tQ an extent that is highly
pernicious-that they cause credit to be given to men who
are not entitled to it, and deprive others of credit to whom
it would be useful.
13. That the granting of exclusive privileges to companies, or the exempting of companies from liablities to which
individuals are subject, is repugnant to the fundamental
principles of American Government; and that the Banks,
inasmuch as they have exclusive privileges and exemp-

SUMMARY.

137

tions, and have the entire control of credit and currency,


are the most pernicious of money corporations.
14. That a nominal responsibility may be imposed on
such corporations, but that it is impossible to impose on
them an effective responsibility. 'rhey respect the laws
and public opinion so far only as is necessary to promote
their own interest.
15. That on the supposition most favorable to the friends
of the Banking system, the whole amount gained by the
substitution of Bank medium for gold and silver coin, is
equal only to about 40 cents per annum for each individual
in the country; but that it will be found that nothing is in
reality gained by tlte nation, if due allowance be made for
the expense of supporting three or fOUf hundred Banks,
and for the fact that Bank-medium is a machine which performs its work baQly.
16. That some hundreds of thousands of dollars are annually extracted from the people of Pennsylvania, and
some millions from the people of the United States, for the
support of the Banks, insomuch as through Banking the
natural order of things is. reversed, and interest paid to
the Banks on evidences of debt due by them, instead of interest being paid to those who part with commodities in
exchange for bank notes.
17. 'That into the formation of the Bank capital of the
country very little substantial wealth has ever entered, that
capital having been formed principally out of the promissory notes of the original subscribers, or by other means
which the operations of the Banks themselves have facilitated. They who have bought the script of the Banks at
second hand, may have honestly paid cent. per cent. for it;
but what they have paid has gone to those from whom they
bought the script, and does not form any part of the capital of the Banks.
18. That if it was the wish of the Legislature to promote
usurious dealings, it could not well devise more efficient
means than incorporating paper money Banks. That these
Banks, moreover, give rise to many kinds of stock-jobbing,
by which the simple-minded are injured and the crafty benefitted.
19. That many legislators have, in voting for Banks, supposed that they were promoting the welfare of their consti-

138

SUMMARY.

tuents; but the prevalence of false views in legislative bodies in- respect to money corporations and paper money, is
to be attributed chiefly to the desire certain members have
to make money for themselves, or to afford their political
partisans and personal friends opportunities for speculation.
20. That the banking interest has a pernicious influence
on the periodical press, on public elections, and the general course of legislation. This interest is so powerful, that
the establishment of a system of sound currency and sound
credit is impracticable, except one or other of the political
parties into which the nation is divided, makes such an object its primary principle of action.
21. That through the various advantages which the
system of incorporated paper money Banking has given to
some men over others, the foundation has been laid of an
artificial inequality of wealth, which k.ind of inequality is,
when once laid, increased by all the subsequent operations
of society.
22. That this artificial inequality of wealth, adds nothing
to the substantial happiness of the rich, and detracts much
from the happiness of the rest of the community. That
its tendency is to corrupt one portion of society, and debase another.
23. That the sudden dissolution of the Banking system,
without suitable preparation, would put an end to the collection of debts, destroy private credit, break up many productive establiohments, throw most of the property of the industrious into the hands of speculators, and deprive laboring people of employment.
24. That the systenl can be got rid of, without difficulty, by prohibiting, after a certain day, the issue of small.
notes, and proceeding gradually to thoseof the' highest denomination.
25. That the feasibility of getting rid of the system, is
further proved by the fact, that the whole amount of Bank
notes and Bank credits, is, according to 1\lr. Gallatin's calculation, only about one hundred and nine million dollars.
By paying tenor eleven millions a year, the whole can be
liquidated in the tenD of ten years. If, however, twenty
or thirty years should be required for the operation, the
longest of these is but a short period in the life time of a
nation.

SUMMARY.

139

26. That it has not been through the undervaluation of


gold at the mint, that eagles and half-eagles have disappeared; but from the free use of Bank notes. Nevertheless, a new coinage of pieces containing four and eight, or
five and ten dollars worth of gold is desirable, to save the
trouble of calculating- fraction~. The dollar being t.he money of contract and account, no possible confusion or injustice can be produced by an adjustment of the gold coinage to the silver standard.
27. That incorporating a paper money Bank is not the
" necessary and proper," or " natural and appropriate" way
of managing the fiscal concerns of the Union; but that the
" necessary and proper ," or " natural and appropriate" way,
is by su b-treasury offices.
28. That incorporating a paper money Bank is not" the
necessary and proper," or "natural and appropriate" way
of correcting the evils occasioned by the State Banks,
inasmuch as a National Bank, resting on the same principles as the State Banks, must produce similar evils.
29. That" convertible" paper prevents the accumulation of such a stock of the precious metals as will enable
the country to bear transitions from peace to war, and
insure the punctual payment of war taxes, and that the
" necessary and proper ," or " natural and appropriate" way
of providing for all public exigencies, is, by making the Government a solid money Government, as was intended by the
framers of the Constitution.
30. That if Congress should, from excessive caution, or
some less commend able motive, decline passing the act3
necessary to insure the gradual withdrawal of Bank notes,
they may greatly diminish the evils of the system, by declaring that nothing but gold and silver shall be received
in payment of duties, and by makiug the operations of the
Government entirely distinct from those of the Banks.
31. That, on the abolition of incorporated paper money
B~nks, private Bankers will rise up, who will receive money
on deposit, and allow interest on the same, discount promissory notes, and buy and sell bills of exchange. Operating on sufficient funds, and being responsible for their
engagements in the whole amount of their estates, these
private Bankers will not by sudden and great "expansions" and" curtailments" derange the whole train of mer-

140

SUMMARY.

cantile operations. In each large cit)', an office of deposit


and transfer, similar to the Bank of Hamburgh, will be
established, and we shall thus secure all the good of the
present Banking system, and avoid all its evils.
32. That, if the present system of Banking and paper
money shall continue, the wealth and population of the
country will increase from natural causes, till they shall be
equal for each square mile to the wealth and population of
Europe. But, with every year, the state of society in the
United States will more nearly approximate to the state of
society in Great Britain. Crime and pauperism will increase. A few men will be inordinately rich, some comfortable, and a multitude in poverty. This condition of
things will naturally lead to the adoption of that policy
which proceeds on the principle that a legal remedy is to
be found for each social e\'il, and nothing left for the operations of nature. This kind of legislation will increase the
evils it is intended to cure.
33. That there is reason to lwpe that, on the downfall of monied corporations, and the substitution of gold and
silver for Bank medium, sound credit wiH take the place
of unsound, and legitimate enterprize the place of wild
speculation. That the moral and intellectual character of
the people will be sensibly though gradually raised, and the
causes laid open of a variety of evils under which society
is now suffering. l.";hat the sources of legislation will, to a
certain extent, be purified, by taking irom members of
legislative bodies inducements to pass laws for the special
benefit of themselves, their personal friends and political
partisans. That the operation of the natural and just
causes of wealth and poverty, will no longer be inverted,
but that each cause will operatta in its natural and just
order, and produce its natural and just effect-wealth becoming the reward of industry, frugality, skill, prUdence,
and enterprize, and poverty the punishment of few except
the indolent and prodigal.

PART II.

SHORT HISTORY
OF

PAPER MONEY AND BANKING


IN THE

U NIT E D S TAT E S.

SHORT HIS'l'ORY
OF

PAPER MONEY AND BANKING.

CHAPTER I.

Of the Medium

of Trade, before the Introduction of


Paper Money.

The first settlers of a country may be greatly in want of


capital, but they do not need a great sum of money as a
medium of domestic trade. A few exchanges of products
for gold and silver coin, will reguhte barter transactions
with sufficient accuracy for general dealings. A great
portion of the stock of money which the original emigrants
brought with them, was, therefore, soon exchanged for the
comforts and conveniences which Europe could supply,
and trade by barter became the custom of the country.
If the Government had not interfered, all would have
been well. But, as early as 1618, as is stated by Holmes,
in his American Annals, Governor Argall of Virginia, ordered "that all goods should be sold at an advance of 25 per
cent., and tobacco taken in payment at three shillings per
pound, and not more or less, on the penalty of three years
servitude to the colony."*
to Mr. Burk says, in the appendix to the first volume of the History
of Virginia"I find in the proclamations of the Virginia Governors and Councils,
the rates of some commodities and something like a scale of exchange
between specie and tobacco. During the administration of Captain
Arga]), tobacco was fixed at three shillings the pound. In 1623, Canary, Malaga, Alieant, Tent, Muskadel, and Bastard wines, were rated
at six shillings in specie, and nine shillings the gallon payable in
tobacco. Sherry, Sack, and Aquavitae, at four shillings, or four shillings and six pence tobacco. Wine vmegar at three shillings, or four

ORIGINAL MEDIUM OF TRADE.

In 1641, as we learn from the same authority, the General Court of Msssachusetts "made orders about payment
of debts, setting corn at the usual price, and making it
payable for all debts which should arise after a time prefixed." In 1643, the same General Court ordered" that
W ampompeag should pass current in the payment of debts
to the amount of forty shillings, the white at eight a penny,
the black at four a penny, except for county rates."
Warnpompeag being an article of traffic. with the Indians,
had a value in domestic trade, but an attempt to fix its
value by law was an absurdity, and making it a legal tender was something worse than absurdity. The measure
was, however, in perfect accordance with the orders given
by the General Court in 1633, declaring, "that artificers,
such as carpenters and masons, should not receive more
t.han two shillings a day, and proportionably, and that merchants should not ad vance more than four pence in the shilling above what their goods cost in England."
shillings and six pence tobacco. Cider and beer vinegar at two shillings, or three shillings in tobacco. Loaf sugar one shilling and eight
pence per pound, or two shIllings and six pence in tobacco; butter and
cheese eight pence per pound. o.r one shiUing in tobacco. Newfoundland fish per cwt. fifteen shillings, or one pound four shiIJings in tobacco. Canada fish, two pounds, or three pounds ten shillings in
tobacco. English meal sold at ten shillings the bushel, and Indian corn
at eight. After a careful inspection of the old records, I cannot find any
rates of labor specified, although they too are mentioned, as forming a
part or the subject of proclamations."
Holmes, in hIS Annals, supplies one deficiency in Burk's price current, namely, the price of a passage from Europe.
" The enterprizing colonists being generally destitute of families, Sir
Edward Sandys, the treasurer, proposed. to the Virginia Company to
send over a freight of young women to become wives Jhr the planters.
The proposal was applauded; and ninety girls, "young and uncorfupt," were sent over in the ships, that arrived this year, (1620) and,
the year following, sixty more, handsome and weH recommended to the
company for their virtuous education and demeanor. The price of a
wife, at the first, was one hundred pounds of to.bac,co: but, as the number became scarce, the price was increased to one hundred and fifty
pou,nds, tbe value of which, in money, was three shilling~ per pound.
This debt for wives, it was ordered, should have the precedellcy of all
other debts, and be first recoverable."
The Rev. Mr. Weems, a Virginia writer, intimates that it would
have done a man's heart good, to see the gallant, young Virginians,
hastening to the water side, when a ship arrived from London, each carrying a bundie of the best tobacco under his arm, and each tal{illg buck
with him a beautiful and virtuous young wife.

ORIGIN AL MEDIUM OF TRADE.

In Pennsylvania, as well as in the other colonies, a considerable traffic was carried on by barter: and we recollect
having read in the Minutes of Assembly, that, about the
year 1700, a proposition was made to make domestic products a legal tender, at their current rates. The proposition was rejected. But Holmes states that, in Maryland,
as late as the year 1732, an act was passed " making tobacco a legal tender at one penny a pound, and Indian corn
at twenty pence a bushel."
The colonists had hardly become numerous enough to
require more than two or three hundred thousand dollars
of medium for domestic uses, before specie began to flow
in abundantly. Their trade with the West Indies and a
clandestine commerce with the Spanish Maine, made silver so plentiful, that, as early as 1652, a mint was established in New England for coining shillings, sixpences
and three penny pieces.*
Gabriel "rhomas, in his account of Pennsylvania, published about the year 1698, says silver was more plentiful
in that province than in England.
Plentiful, however, as it was, there was not enough to
satisfy the wishes of every body. Attempts were, therefore,
made to keep the precious metals in the country, by raising the official value of the coin. Virginia, in 1645, prohibited dealings by barter, and established the Spanish
piece of eight at six shillings, as the standard currency of
it "The law enacted that" Massachusetts" and a tree in the centre,
be on thp. one side: and New England, and the year of our Lord, and
the figure XII, VI, 111, according to the value of each piece, be on the
other side."-Massachusetts Laws. The several coins had N. E. on one
side, and the number denoting the number of pence, with the year 1652,
on the other. The date was never altered, though more coin wa.
stamped annually for thirty years."-Holmes.
In 1662, the Assembly of Maryland besought the proprietary" to take
orders fcJr setting up a mint," and a law was passed for that purpose.
" The great hindr:lnce to the colony in trade for the want of money" is
assigned as the reason for the measure. It was enacted, that the money coined shall be of as good silver as English sterling; that every
shilling, and so in proportion for other pieces, shall weigh above nine
pence in such silver; and that the proprietary shall accept of it in payment of his rents and other debts. This coin being afterwardil circu..
lated, the present Jaw of Maryland was confirmed in 1676. This is
the onl,Y law for coining money, which occurs in colonial history, previous to the American Revolution, excepting the ordinance of Massachusetts in 1652."-Chalmers, 1. 248.

ORIGIN AL MEDIUM OF TRADE.

that colony. 'fhe other colonies affixed various denominations to the dollar, and the country exhibited a singular
spectacle. Its money of account was the same nominally
as that of England. Its coin was chiefly Spanish and
Portuguese. But, what was a shiHing in Pennsylvania,
was more than a shilling in New York, and less than a
shilling in Virginia.
In the third year of Queen Anne, an attempt was made
to put an end to this confusion, by a Royal Proclamation
and act of Parliament, fixing the plantation pound at two
ounces sixteen pennyweights sixteen grains of silver, of
the fineness of common pieces of eight, at six shillings and
ten pence half-penny per ounce; but, from various causes,
the act proved effective in Barbadoes only. Tn South Carolina, the dollar was estimated at 4s. 8d , in Virginia and
New England at 6s., in Pennsylvania, New Jersey, and
Maryland at 7s. 6d., and in New York and North Carolina at 8s.
These are to be understood as the rates at which the
currencies of the different colonies were finally settled.
They were varied from time to time to suit the varying
views of the lawgivers. * Confusion in dealing was thereby introduced, and some injustice was done to individuals:
but the chief object of these changes, namely, that of keeping a great stock of the precious metals in the country,
was not effected. In proportion as the denominations of
the coin were raised, the merchants raised the price of
their goods. The laws of nature counteracted the laws of
the land. The people exchanged their surplus gold and
silver for such things as they wanted still more than gold
and silver-leaving just as much money in the country as
its domestic trade required, and not one shilling more.
of Dr. Franklin, in his
HistQricaI Account of Pennflylvania, says,
" During this weak practice, silver got up by degrees to eight shillings
and nine pence per ounce, and English crowns were six, seven, and
eight shillings a piece."

PROVI~CIAL

PAPER MOXEY.

CHAPTER II.

Of Provincial Peper JJIoney.


Paper money was first issued by ~lassachusetts in IG90.
The object was not to supply any supposed want of a medium for trade, but to satisfy the demands of some clamorQUS soldiers.
Other issues were subsequently made, partly with the view of defraying the expenses of Government,
and partly with the view of making money plenty in every
man's pocket. But, as the quantity increased, the value
diminished, as will be seen on inspecting the following
table.*
Exch. witlt
London.

10z. Silver.

Ewh. 1cith
London.

10z. Silver.

1702
133
65. 10~d. 1728
340
18s.
380
1705
135
7
1730
20
500
1713 - 150
8
1737 26
550
1716 - 175
9
3
1741
28
1717 - 225
12
1749 - 1100 - GO
1722 - 270 - 14
The ill-judged expedition of the Carolinians against St.
Augustine, in 1702, entailed a debt of 6000 pounds on that
colony, for the discharge of which a bill was pas~ed by the
Provincial Assembly for stamping bills of credit, which were
to be sunk in three years by a duty laid upon liquors, skins
and furs. For five or six years after the emission, the paper passed in the country at the same value and rate as the
sterling money of England. t
To defray the expenses of an expedition against the Tuscaroras, and to accommodate domestic trade, the Legislature of South Carolina established a public Bank in 1712,
and issued 4t;,000 pounds in bills of credit, called Bank
bills, to be lent out on interest on landed and personal security, and to be sunk gradually at the rate of 4000 pounds a
year. Soon after the emission of these Bank bills, the rate
of exchange and the price of produce rose, advancing in
the first year to 150, and in the second to 200 per cent.t
~

Holmes. Vol. II, p. J79.

p.82.

t lb. Vol. H, p. 58.

t lb. Vol. 11,

PROVINCIAL PAPER MONEY.

By the year 1731, the rate of exchange rose to 700, at


which, says Holmes, " it continued with little variation upwards of forty years."
In the year 1723, " the province of Pennsylvania made
its first experiment of a paper currency. It issued, in
March, 15,000 pounds, on such terms as appeared likely to
be effectual to keep up the credit of the bills. It made no
loans, but on land security or plate deposited in the loan
office: obliged the borrowers to pay five per cent. for the
sums they took up; made its bills a tender in a11 payments,
on pain of confiscating the debt, or forfeiting the commodity; imposed sufficient penalties on all persons, who presumed to make any bargain or sale on cheaper terms in
case of being paid in gold or silver; and provided for the
gradual reduction of the bills, by enacting that one-eighth
of the principal,.as well as the whole interest, should be annually paid."
Governor Pownall, in his work on the Administration of
the Colonies, bestows high praise on the paper system of
Pennsylvania, "I will venture to say" he declares, " that
there never was a wiser or a better measure, never one
better calculated to serve the interests of an increasing
country that there never was a measure more steadily pursued, or nlore faithfully executed, for forty years together,
than the loan office in Pennsylvania, founded and administered by the Assembly of that province." Dr. Franklin, also, bestowed high commendation on the system. And
Adaln Smith, apparently guided by Governor Pownall and
Dr. Franklin, says" Pennsylvania was always more moderate in its emission of paper money than any of our other
colonies. Its paper currency accordingly is said never to
have sunk below the value of the gold and silver which
was current in the colony before the first emission of its
paper money."
All things go by comparison. The credit bills of Pennsylvania were so much better than those of the other Governments, that there was a demand for them throughout
the country as bills of exchange: but it was not a fact that
they never' sunk below the value of the gold and silver
which was current in the colony before the first emission
7

ff

Holmes. Vol. II, p. 110.

PROVIXCIAL PAPER MOl\'EY.

Tlw following table taken from an official


document to be found in Proud's IIistory of Pennsylvania
shows that the paper was never at a less discount than eleven p~r cent. if gold be taken as the standard, or seven per
cent. If silver be the standard.

of its paper.

1700 to 1709

Uold.

Silver.

15 lOs. Ode
5 10 0
5 10 0

9s. 2d.
1709 to 1720
6 10:!
1720 to 1723
7 5
1723 to 1726
fj
(3(3
83
1726 to 1730
6 3 9
8 1
1730 to 1738
6 9 3
8 9
We have no account of the bullion market in provincial
Pennsylvania, subsequent to the year 1738, but this table
shows that those who represented to Adam Smith that the
paper of the colony suffered no depreciation, were misled
by making neither gold nor silver the standard, but by
making the paper the standard of itself. As the Pennsylvania pound current never changed its name, they thought
it never changed its vaJue.*
The following table shows the rate of exchange of the
7/- It is curious to observe the
similarity of the reasoning of the supporters of this paper money with that of the anti-bullionists of a subsequent period. A merchant of Boston writing to his friend in England
in 1740, uses the following language.
" Upon the continuance of a favorable turn in the trading circumstances of the province of New England, the Government might stop
at any rate which silver should fall to, and make that rate the fixed
silver pound, and make it a lawful tender; and common consent or acceptance of the people would complete the scheme of silver money.
And thus the pound sterling is fixed in England at three ounces seventeen penny weights and two grains of silver, of a certain fineness, or
silver at five shillings and two pence per onnce.
" But if that kingdom were under our unhappy circumstances, as
not having a sufficiency in value in silver and all other expo~ts to discharge the whole demand of their imports: it would then be next to
a miracle if silver did not rise to above five shillings and two pence
per ounce in the market, in proportion to the balance of debt against
them ~ and their trading circumstauces continue to decline, as ours
bave; their silver would be brought to twenty seven shillings per ounce,
as ours is, and the current money of Great Britain be at the rate of
twenty shillings per ounce, whatever the lawfnl money might be. 17
Anderson, vol. iii. p. 498.
Here we have the doctrine clearly stated that when paper is at a discount, it is not paper that has fallen, but silver that has risen; and the
English Anti-Bullionists are thus deprived of all claim to originahty in

10

PROVINCIAL PAPER MONEY.

currencies of the different colonies, for 100 sterling, at


two different periods.*
1,740
1,748
New England,
525
1,100
New York,
]60
190
New Jersey, 160
180 and 190
170
180
Pennsylvania,
Maryland,
200
200
North Carolina,
1,400
1,000
South Carolina,
800
750
Virginia,
120 a 125.
The Government of Virginia appears not to have issued
any paper money previous to the Revolutiohary 'Var.
In respect to the paper money of the colonies generally,
we may say, in the language of Adam Smith, "allowing
the colony security to be perfectly good, a hundred pounds
payable fifteen years hence, in a country where interest is
at six per cent., is worth" little more than forty pounds ready
money. To oblige a creditor, therefore, to accept of this
as a full payment for a debt of a hundred pounds actually
paid down in ready money, was an act of such violent injustice as has scarce, perhaps, been attempted by the Governll\tmt of any other country which pretended to be free.
It bears the evident marks of having originally been, what
the honest and do\vnright Dr. Douglass assures us it was,
a scheme of fraudulent debtors to cheat their creditors.
The Government of Pennsylvania, indeed, pretended, upon
their first emission of paper money, to render their paper
of equal value with gold and silver, by enacting penalties
against all those who made any difference in the price of
their goods when they sold them for colony paper, and
when they sold them for gold and silver: a regulation
equally tyrannical, but much less effectual than that which it
was meant to support. A positive law may render a shilling
a legal tender for a guinea, because it may direct the courts
of justice to discharge the debtor who has made that tender. But no positive law can oblige a person who sells
error. All the arguments they used during the suspension of specie
payments were mere plagiarisms from the Boston merchant."
~ The items in the first column'are from Anderson: those in the
second from Dr. Douglass.

PROVINCIAL PAPER MONEY.

11

goods, and who is at liberty to sell or not to sell as he


pleases, to accept of a shilling as equivalent to a guinea
in the price of them."
Dr. Williamson, the historian of North Carolina, says:
" Of all the varieties of fraud which have been practised
by men who call themselves honest, and wish to preserve a
decent appearance, none have been more frequent in legislative bodies than the attempt to pass money for more than its
proper value. There are men who conceive that crimes
lose their stain, when the offenders are numerous: that in
the character of legislators they cannot be rogues: " defendit numerus." There are men who would be ashamed
to acquire five shillings by stealing, picking a pocket, or
robbing on the high-way; but they would freely and without blushing assist in passing a law to defraud their creditors of their just demands. There are instances of men
being banished from North Carolina for stealing a hog not
worth five dollars: while the men who banished them would
contend for paying a debt of seven pounds with the value
of twenty shillings: the moral sense is depraved by tender
laws, or laws that enable the debtor to defraud his creditor,
by offering him a fictitious payment. By such laws the
mind is alienated from the love of justice, and is prepared
for any species of chicane and fraud."
Hutchinson, the historian of l\lassachusetts, has preserved many curious particulars of the introduction of paper
money into this country, and of its operation on society.
After relating the unsuccessful expedition of the Massachusetts troops against Quebec in 1690, he says:
" The Government was utterly unprepared for the return
of the forces. They seem to have presumed, not only
upon success, but upon the enemy's treasure to bear the
charge of the expedition. 'fhe soldiers were upon the
point of mutiny for want of their wages. It was utterly
impracticable to raise in a few days such a sum as would
be necessary. An act was passed for levying the :;um,
but the men would not stay until it should be brought
into the treasury. The extreme difficulty to which the
Government \vas thus reduced, was the occasion of the
first bills of credit ever issued 'in the colonies, as a substitute in the place of money. The debt was paid by paper
notes from hvo shillings to ten pounds denomination, which

12

PROVINCIAL PAPER MOl\"EY.

notes were to be received for payment of the tax which


was to be levied, and all other payments in the treasury.
This was a new expedient. They had better credit than
King James' leather money in Ireland, about the same
But the notes would not command money, nor
time.
any commodities at money price. Sir William Phipps, it
is said, exchanged a large sum at par in order to gire
them credit. The soldiers in general were great sufferers,
and could get no more than twelve or fourteen shillings in
the pound. As the time of payment of the tax approached, the credit of the notes was raised, and the Government
allowing five per cent. to those who paid their taxes in
notes, they became better than money. This was gain to
the possessor, but it did not restore to the poor soldier
what he had lost by the discount.
"The Government, encouraged oy the restoration of
cr~dit to their bills, afterwards issued others for charges of
Government. They obtained good credit at the time of their
being issued. The charges of Government were paid in
this manner from year to year. 'Vhilst the sum was small
silver continued the measure, and bills continued their value.
'Vhen the charges ofGuvernment increased,after the second
expedition to Canada in 1711, the bills likewise increased,
and in the same or greater proportion, the silver and gold
were sent out of the country. There being a cry of scarcity of
money in 1714, the Government caused 50,000 to be
issued, and in 1716, 100,000, and lent to the inhabitants,
to be paid in at a certain period, and in the mean time to
pass as money. Lands were mortgaged for security. As
soon as the silver and gold were gone and the bills were
the sale instrument of commerce, pounds, shillings, and
pence were altogether ideal, for no possible reason could
be assigned why a bill of twenty shillings should bear a
certain proportion to anyone quantity of silver more than
another. Sums in bills were drawing into the treasury
from time to time, by the taxes or payment of the loans:
but then other sums were continually issuing out, and all
the bills were paid and received without any distinction,
either in public or private payments, so that, for near forty
years together, the currency was in much the same state
as if an hundred thousand pounds sterling had been stamped on pieces of leather, or paper of various denominations,

PROVINCIAL PAPER MONEY.

13

and declared to be the money of the Government, without


any other sanction than this, that, when there should be
taxes to pay, the treasury would receive this sort of money,
and that every creditor should be obliged to receive it
from his debtor. Can it be supposed that such a medium
could retain its value 1 In 1702,6s. 8d. was equal to an
ounce of silver. In 1749, 50s. was judged equal to an
ounce of silver. I saw a five shilling bill which had been
issued in 1690, and was remaining in 1749, and was then
equal to eight pence only in the lawful money, and so retained but one-eighth of its original value. Such was the
delusion, that not only the bills of the Massachsetts Government passed as money, but they received the bills of the
Governments of Connecticut, New Hampshire, and Rhode
Island also as a currency. The Massachusetts bills passed
also in those Governments.*
By the year 1713, "silver and gold were entirely banished. Of two instruments, one in use in a particular
State only, the other with the whole commercial world, it is
easy to determine which must leave the particular State
and which remain. '"The currency of silver and gold en
tirely ceasing, the price of every thing bought or sold was
no longer compared therewith, but with paper bills, or
rather with mere ideal pounds, shillings, and pence. The
rise of exchange with England and all other countries was
not attributed to the true cause, the want of a fixed staple
medium, but to the general bad state of the trade. Three
parties were formed, one very small, which was for drawing in the paper bills and depending upon a silver and gold
currency. l\lr. Hutchinson, one of the members for Boston, was among the most active of this party. He was an
enemy all his life, to a depreciating currency, upon a principle very ancient, but too seldom practised upon, nil
utile quod non honestum, [nothing which is not honest is
useful.]
"Another party was very numerous. These had projected a private Bank, or rather had taken up a project
published in London in the year 1684: but this not being
generally known in America, a merchant in Boston was
the reputed father of it. There was nothing more in it
if Hutchinsons' History of Massachusetts, vol 1, p. 402-3.
edition, 1765.

London

14

PROVINCIAL PAPER MONEY.

that issuing bills of credit, which all the members of the


company promised to receive as money, but at no certain
value compared with silver and gold: and real estates, to a
sufficient value, were to "be bound as a security that the
company should perform their engagements. They were
soliciting the sanction of the general court and an act of
Government to incorporate them. This party, generally,
consisted of persons in difficult or involved circumstances
in trade, or such as were possessed of real estates, but had
little or no ready money at command, or men of no substance at all: and we may well enough suppose the party
to be very numerous. Some, no doubt, joined them froln
mistaken principles, and an apprehension that it was a
scheme beneficial to the public, and some for party sake
and popular applause.
"A third party, though very opposite to the private
Bank, yet were no enemies to bills of credit. They were
in favor of a loan of bills from the Government to any of the
inhabitants who would mortgage their estates as a security
for the re'payment of the bills, with interest, in a term of
years, the interest to be paid annually, and applied to the
support of Government. This was an easy way of paying
public charges, which no doubt, they wondered that in so
many ages the wisdom of other Governments had never
discovered.
"The controversy had a universal spread, and divided
towns, parishes, and particular families. At length, after
a long struggle, the party for the public Bank prevailed in
the General Court for a loan of fifty thousand ponnds in
bills of credit, which were put in the hands of trustees,
and lent for five years only, to any of the inhabitants at
five per cent. interest, one-fifth part of the principal to be
paid annually. 'This lessened the number of the party for
the private Bank, but it increased the zeal and raised' a
strong resentment in those that remained."*
Under this system the trade of the province declined,
and in the year 1720, there was a general cry for want of
money. "The bills of credit, which were the only money,
were daily depreciating. The depreciation was grievous
to all creditors, but particularly distressing to the clergy
:~

Hutchinson, vol. I. pp. 206,7, 8 & 9.

Boston edition of 1765.

PROVINCIAL

PAPER MONEY.

15

and other salary men, to widows and orphans whose estates


consisted of money at interest, perhaps just enough to support them, and being reduced to one-half the former value,
they found themselves on a sudden in a state of poverty
and want. Executors and administrators, and all who were
possessed of the effects of others in trust, had a strong
temptation to retain them. The influence a bad currency
has upon the morals of the people, is greater than is generally imagined. Numbers of shemes, for private and public. emissions of bills, were proposed as remedies, the only
effectual one, the utter abolition of the bills, was omitted."*
In 1721, the Governor recommended measures for preventing the depreeiation of the currency: and the Assembly gave him for answer, that they" had passed a bill for
issuing one hundred thousand pounds more in bills of credit." This alone, as Hutchinson justly observes, had a
direct tendency to increase the mischief: but they added
that "to preven t their depreciation, they had prohibited
the buying, selling and bartering silver, at any higher rates
than set by acts of Parliament." This certainly could
have no tendency to lessen it. Such an act can no more
be executed than an act to stop the ebbing and flow of the
sea."t
" In 1733 there was a general complaint throughout the
four Governments of New England of the unusual scarcity
of money. There was as large a sum current in bills of
credit as ever, but the bills having depreciated, they an5wered the purposes of money so much less in proportion.
'rhe l\fassachusetts and New Hampshire Governments
were clogged with royal instructions. It was owing to
to them that those Governments had not issued bills to as
great an amount as Rhode Island. Connecticut, although
under no restraint, yet consisting of more husbandmen and
fewer traders than the rest, did not so much feel the
want of money. The Massachusetts people were dissatisfied that Rhode Island should send their bills among them
and take away their substance and employ it in trade, and
many persons wished to see the bills of each Government
current within the limits of such Government only. In the
midst of this didcontent, Rhode Island passed an act for
. . Hutchinson, pp. 231, 2.

t lb. pp. 245, 6.

16

PROVINCIAL PAPER MONEY.

issuing 100,000 upon loan, for, I think, twenty years, to


their own inhabitants, who would immediately have it in
their power to add 100,000 to their trading stock, from
the horses, sheep, lumber, fish, &c., of the l\lassachusetts
inhabitants-. 'rhe merchants of Boston, therefore, confederated and mutuaIJy promised and engaged not to receive
any bills of this new emission, but, to provide a currency,
a large number formed themselves into a company, entered into covenants, chose directors, &c., and issued
100,000, redeemable in ten years; in silver at 19s. per oz.
the then current rate, or gold in proportion, a tenth part
annuaIJy. About the same time the l\'!assachuseUs treasury, which had been long shut, was opened, and the
debts of two or three years were all paid at one time in
bills of credit: to this was added the ordinary emission of
bills from New llarnpshire and Connecticut; and some of
the Boston merchants, tempted by an opportunity of selling
their English goods, having broke through their engagements and received Rhode Island bilJs, all the rest soon
followed the example. All these emissions made a flood of
money, silver rose from 19s. to 27s. the oz. and exchange
with all other countries consequently rose also, and every
creditor was defrauded of about one-third of his just dues.
As soon as silver rose to 27s., the notes issued by the merchants at 198., were hoarded up and no longer answered
the purposes of money. Although the currency was lessened by taking away the notes, yet what remained never
increased in value, silver continuing severa] years about
the same rate, until it took another large jump. 'Thus very
great injustice was caused by this wretched paper currency,
and no relief of any sort obtained; for, by this sinking in
value, though the nominal sum was higher than it had
ever been before, yet th~ currency would produce no more
sterling money that it would have done before the late
emissions were made.*
Towards the close of the year 1738, a great clamor arose
against the Gorernor for adhering to his instructions about
paper money, and an agent was appointed at the expense
of the colony, to procure, if possible, a relaxation of the instructions. A petition was presented by him from the
Iiouse to his .\lajesty in Council, but it had no effect.
.. Hutchinson, p. 380, 1.

PROVINCIAL PAPER MONEY.

17

"A general dread of drawing in aIJ the paper money


without the substitution of any other instrument of trade
in the place of it, disposed a great part of the province to
favor the Land Bank or manufactory scheme, which was
begun or rather revived in this year, 1739, and produced
such great and lasting mischiefs, that a particular relation
of the rise, progress, and overthrow of it, may be of use to
prevent any attempts of the like nature in future ages. By
a strange conduct in the General Court they had been issuing bills of credit for eight or ten years annually, for
charges of Government, antI being wiIJing to ease each
present year, they had put off the redemption of the bills as
far as they could, but the Governor being restrained by his
instructions from' going beyond the year 1740, that year
was unreasonably loaded with thirty or forty thousand
pounds sterling taxes, which, according to the general opinions of the people, it was impossible to levy. Royal instructions were no bar to the proceedings of private persons. The project of a Bank in the year 1714 was revived.
The projector of that Bank now put himself at the head of
seven or eight hundred persons, some few of rank and good
estate, but generally of low condition among the plebians,
and of small estate, and many of them perhaps insolvent.
This notable company were to give credit to 150,000,
lawful money, to be issued in bills, each person being to
mortgage a real estate in proportion to the sum he subscribed and took out, or to give bond with two sureties, but
personal security was not to be taken for more than 100
from anyone person. 'Ten directors and a treasurer were
to be chosen by the company. Every subscriber or partner was to pay three per cent. interest for the sum taken
out, and five per c~nt. of the principal, and he that did not
pay bills might pay the produce and manufactures of the
province at such rates as the directors from time to time
should set, and they should commonly pass in lawful money. The pretence was, that by thus furnishing a medium
and instrument. of trade, not only the inhabitanta in general would be better able to procure the province bills of
credit, but trade, foreign and inland, would revive and
flourish. The fate of the project was thought to depend
on the opinion the General Court should form of it. It was
necessary therefore to have a House of Representatives

18

PROVINCIAL PAPER MONEY.

well disposed. Besides the eight hundred persons, subthe needy part of the province, in general, favored the scheme. One of their votes will go as far in popular elections as one of the most opulent. The former are
n10st numerous, and it appeared that by far the majority of
representatives for 1740 were subscribers to or favorers of
the scheme, and they have ever since been distinguished
by the name of the Land Bank House.
" Men of estates and the principal merchants in the province abhorred the project and refused to receive the bills,
but great numbers of shopkeepers who had lived for a long
time before upon the fraud of a depreciating currency, and
many small traders, gave credit to the bills. The directors,
it was said, by a vote of the company became traders, and
issued just what bills they thought proper without any fund
or security for their ever being redeemed. 'They purchased every sort of commodity, ever so much a drug, for
the sake of pushing off their bills, and by one means or
other a large sum, say perhaps fifty or sixty thousand
pounds, was abroad. 'To lessen the temptation to receive
the bills, a company of merchants agreed to issue their
notes or bills redeemable hy silver and gold at distant periods, much like the scheme in 1733, and attended with no
better effect. '.rhe Governor exerted himself to blast this
fraudulent undertaking, the Land Bank. Notonly such civil
and military officers as were director~ or partners, but all
who received and paid any of the bills, were displaced. The
Governor negatived the person chosen Speaker of the House
being a director of the Bank, and afterwards negatived 13
of the new elected counsellors who were directors or partners in, or reputed favorers of, the scheme. But all was
insufficient to suppress it. Perhaps the f!lajor part, in numLer, of the inhabitants of the province openly or secretly
were well-wishers to it. One of the directors afterwards
acknowledged to me that although he entered into the
company with a view to the public interest, yet when he
found what power and influence they had in all public
concerns, he was convinced it was more than belonged to
them, more than they could make a good use of, and there.fore unwarrantable. Many of the most sensible, discreet
persons in the province ~aw a general confusion at hand.
Application was therefore made to Parliament for an act to
scriber~

PROVINCIAL PAPER MONEY.

19

suppress the company, which, notwithstanding the opposition of the agent, was very easily obtained, and thereon it
was declared that the act of the 6th of King George the
First, chapter eighteenth, [the Bubble Act] did, does, and
shall extend to the colonies and plantations in America.
Had not the Parliament interposed, the province would
have been in the utmost confusion, and the authority of
Government entirely in the Land Bank Company."*
Every scheme for fixing the value of the provincial bills
of credit having failed, ., a new project was, in 1741, reported by a committee of the House and accepted, and afterwards concurred in by the council and consented to by the
Governor. This was a scheme to establish an ideal measure, in all trade and dealings, let the instrument be what
it would. The act which passed the Court declared that
all contracts should be understood payable in silver at 6s.
Sd. the ounce, or gold in proportion. Bills of a new form
were issued, 20s. of \vhich expressed in the face of the bill
three ounces of silver, and they were to be received accordingly in all public and private payments, with this saving, that, if they should depreciate in their value, an addition should be made to all debts as much as the depreciation from the time of contract to the time of payment.
How to ascertain the depreciation from time to time was
the great difficulty in framing the act. To leave it to a
common jury would never do. There were some doubts
whether a House of Representatives would be wholly unbiassed. At length it was agreed that the eldest counsellor
in each county should meet once a year to ascertain the
depreciation.
" This at best must have been a very partial cure. It
did not prevent the loss from the depreciation of the bills
in those persons' hands through which they were continually passing. All debts which were contracted and paid
between the periods when the value of the bills was fixed
annually, could not be affected by such fixing, and unless
in debts of long standing which the debtor would not pay
without an action at law, demand was not ordinarily made
for depreciation, and what rendered it of little effect in all
other cases, the counsellors appointed to estimate the de
it

Hutchinson, pp. 392,3, 4,5 and 6.

20

PROVINCIAL PAPER MONEY.

preciation never had firmness enough in any instance to


make the full allowance, but when silver and exchange had
riRen 20 per cent. or more, an addition was made of four or
five only. The popular cry was against it, and one year
when Nathaniel Hubbard, Esq. the eldest counsellor for the
county of Bristol, a gentleman of amiable character, and
who filled the several posts he sustained with applaufe, endeavored to approach nearer to a just allowance than had
been made in former years, he felt the resentment of the
House, who left him out of the council the next election.
In short, the act neither prevented the depreciation of the
bills nor afforded relief in case of it, and was of no other
service than to serve as a warning, when an act passed for
establishing the currency a few years after, to leave nothing
to be done by any person or bodies of men, or even future
legislatures, to give the act its designed effect, but in the
act itself to make full provision for its execution in every
part."*'
" By the expedition to Lewisburgh, the preparations for
the reduction of Canada, and the several supplies of men
for Nova Scotia, the province had," by the year 1747, " issued an immense sum in bills of credit, between two and
three millions, according to their denomination in the currency. The greater part of this sum had been issued
when between five and six hundred pounds was equal to
one hundred pounds sterling, and perhaps the real consideration the Government received from the inhabitants who
gave credit to them, was near four hundred thousand pounds
sterling: but by thus multiplying the bills they had so
much depreciated that, at the end of the war, eleven or
twelve hundred pounds was not equal to more than a hundred p~>unds sterling, and the whole debt of the province
did not much exceed two hundred thousand pounds sterling. Thus the people had paid two hundred thousand
pounds sterling in two or three years, besides a large sum
raised by taxes each year, as much as it was supposed the
people were able to pay; but to pay by the depreciation
of the bills, although infinitely unequal, yet, as they
were shifting hands every day, it was almost insensible, a
possessor of a large sum for a few days not perceiving the
-If

Hutchinson, pp. 402,

~~,

4.

'PROVINCIAL PAPER MONEY.

21

difference in their value between the time when h~ received them and the time when he parted with them. The
apprehension of their depreciation tended to increase it,
and occasioned a quick circulation; and for some time,
even for English goods, which ordinarily sell for the long..
est credit, no body pretended to ask credit. They were
constantly, however, dying in somebody':::; hands, though nobody kept them long by them. Business was brisk, men
in trade increased their figures, but were Rinking the real
value of their stock, and, what is worse, by endeavors to
shift the loss attending such a pernicious currency from
one to another, fraud ulent dispositions and habits are
acquired, and the morals of the people depreciate with the
currency.
" The Government was soIicting for the reimbursement
of the charges in taking and securing Cape Breton, and by
the address, assiduity, and fidelity of William Bollan, Esq. ;
who was one of the agents of the province for that purpose,
there was a hopeful prospect that the full sum, about
180,000 sterling, \\-'ould be obtained.
H 1V1r. I-Iutchinson, who was then Speaker of the House
of Representatives, imagined this to be a most favorable
opportunity for abolishing the bills of credit, the source of
so much iniquity, and for establishing a stable currency of
gold and silver for the future. A bout two millions two
hundred thousand pounds would be outstanding in bills
in the year 1749. One hundred and eighty thousand
pounds sterling at eleven for one-which was the lowest
rate of exchange with London for a year or two before, and
perhaps the difference was really twelve to one-would redeem nineteen hundred and eighty thousand pounds,
which would leave but two hundred and twenty thousand
pounds outstanding: it was therefore proposed that the
sum granted by Parliament should be shipped to the province in Spanish milled dollars and applied for the redemption of the bills as far as would serve for that purpose, and
that the remainder of the bills should be drawn in by a tax
on the year 1749. This would finish the bills. For the
future, silver of sterling alloy at 6s. 8d. the ounce, if payment should be made in bullion, or otherwise milled dollars at 6s. each, should be the lawful money of the province,
and no person should receive or pay within the province,

22

PROVINCIAL PAPER MONEY.

bills of credit of any of the other Governments of New


England. This proposal being made to the Governor, he
approved of it, as founded in justice and tending to promote
the real iuterest of the province, but he knew the attachment of the people to paper money, and supposed it impracticable. The Speaker, however, laid the proposal before
the llouse, when it was received with a smile, and generally thought to be a Utopian project; and, rather out of
deference to the Speaker than from an apprehension of any
effect, the House appointed a committee to consider of it.
The committee treated it in the same manner, but reported that the Speaker should be desired to bring in a bill for
the consideration of the Il0use. When this came to be
known abroad, exceptions were taken and a clamor was
raised from every quarter. The major part of the people
in number, were no sufferers by a depreciating currency;
the number of debtors is always more than the number of
creditors, and although debts on specialities had allowance
made in judgments of courts for depreciation of the bills,
yet on simple contracts, of which there were ten to one
speciality, no allowance was made. Those who were for
a fixed currency were divided. Some supposed the bins
might be reduced to so small a quantity as to be fixed and
stable, and, therefore, were for redeeming as many by bills
of exchange as should be thought superfluous; others were
for putting an end to the bills, but in a gradual way, otherwise it \\'as- said a fatal shock would be given to trade.
This .last was the ohjection of many men of good sense.
Douglass, who had wrote well UpOD the paper currency and
been lhe oracIe of the anti-paper party, was among them,
and, as his manner was with all who differed from him,
discovered as much rancor agairst the author and promoter of this new project as he had done against the fraudulent contrivers of paper money emissions."*
After many weeks spent in debating and settling the severill parts of the bill, it was rejected: but, afterwards, on
motion, reconsidered, passed by the House and Council,
and approved by the Governor.
" The provision made by this act for the exchange of the
bills and for establishing a silver currency, was altogether
'If

Hutchinson, pp. 435, 6, 7.

PROVINCIAL PAPER MONEY.

23

conditional, and depended upon a grant of Parliament for reimbursement of the charge of the Cape Breton expedition.
This being at a distance and not absolutely certain, the act
had no sudden effect upon the minds of the people, but when
the news of the grant arrived, the discontent appeared more
visible, and upon the arrival of the money there were some
beginnings of tumults, and the authors and promoters of
the measure were threatened. The Government passed an
act with a severe penalty against riots, and appeared determined to carry the other act for exchanging 'the bills into
execution. The apprehensions of a shock to trade proved
groundless: the bills being dispersed through every part
of the province, the silver took place instead of them, a
good currency was insensibly substituted in the room of a
bad one, and every branch of business was carried on to
greater advantage than before. The other Governments}
especially Connecticut and Rhode Island, who refused,
upon being invited, to conform their currency to the l\Iassachusetts, felt a shock in their trade from which they have
not yet recovered. The latter had been the importers for
Massachusetts, of West India goods for many years, which
ceased at once."*
From this account of the operation of the provincial paper money of Massachusetts, the reader may judge of its
operation in the other colonies; and thereby learn to estimate properly that provision of the United States' Constitution . which forbids any State" to emit bills of credit, pass
any law violating the obligation of contracts, or make any
thing but gold and silver a legal tender in the payment of
debts."
The succ.essful issue of the experiment in Massachusetts
did not induce the other Governmel'lts to take the necessary
measures for substituting a metallic for a paper medium.
But, as the British merchants trading to the colonies were
sufferers by the monetary system of the day, an act of
Parliament was passed in 1763, " to prevent paper bills of
credit, hereafter to be issued in any of his lUajesty's colonies or plantations in America, from being declared to be a
legal tender in payment of money, and to prevent the legal
tender of such bills as are now subsisting from being pro* Hutchinson, p. 440.

24

PROVINCIAL PAPER MONEY.

longed beyond the periods for calling in aild sinking the


same."
The preamble to the act declared, with great truth, that,
by means of paper bills of credit, "debts have been discharged with a much less value than was contracted for, to
the great discouragement and prejudice of trade and commerce of his Majesty's subjects, by occasioning confusion
in dealings and lessening credit in the said colonies or
plantations." The body of the act made void all acts
of Assembly thereafter passed to establish or keep up such
tender; and inflicted a fine of 1000 pounds (with immediate dismissal and future incapacity to fill any public of.
fice or place of trust,) on any Governor who should give
his assent to such act of legal tender.
This measure caused much murmuring, for the speculating classes of society, who are always the most noisy,
liked not to be deprived of so many opportunities of profit
as a vacillating currency afforded them. They appeared
to have had influence enough to prevent the act from being
effective in some of the colonies; for we find that ten years
after, another act with the same title was passed by the British Parliament.
The two acts together seem to have reduced the paper
bills of credit to a very small amount; for Pelatiah Webster, a respectable merchant of Philadelphia, estimates the
whole circulating c~sh of the thirteen States, just before the
war, at twelve million dollars, or perhaps, not more than
ten million hard dollars in value. "Not more than half,
or at most three-fifths of the circulating cash in this State
(Pennsylvania,) was paper; and I am well convinced that
that proportion was not exceeded in the other States where
paper nloney was circulated."
This provincial paper may be regarded as a species of
Government script which by an act of tyranny was made
a legal tender. It fluctuated in value, according to the
changes in the credit of the Government by which it was
issued, and the amount thrown into the market. Being
more liable to great depreciation, it was inferior to Bank
paper as money: but its character was better understood by
the people. They knew the authority of the Government,
and the resources of the Government. When they were
injured, they knew by whom they were injured, if not to
what extent.

CONTINENTAL MONEY.

25

In one respect the provincial paper money system had


an effect directly opposite to that of the present Banking
system. Through the present Banking system, dealings on
credit are carried to an extent beyond that in which they
are useful, and in which they become highly pernicious.
Through the old paper money system, confidence was destroyed, and credit prevented from spreading to its natural
extent.
'.rhe profits gained by the Governments by the issues of
paper money, enabled them to diminish the regular taxes;
but this gain was insignificant, and the evils produced by
the system were incalculably great. All that honest men
lost by highwaymen, house-breakers, foot-pads, and horsethieves, was trifling in amount when compared with that
which they lost through the instrumentality of the paper
money of the different colonies.

CHAPTER III.

Of Continental Money.
According to an estimate by the Register of the Treasl\ry,
in 1790, the issues of continental money were as follows,
viz:
Old Emission.

Dolls.

In

1776 -

1777 1778
1779
1780
1781

90ths.

20,064,464 66
26,426,333
1
66,965,269 34
149,703,856 77
8~,908,320 47
11.408,095 00
$357,476,541

45

New Emission.

Dolls. 90ths.

891,236 80
- 1,179,249 00
$2,070,485 80*

The first emission was dated May 10 ] 775, but the


notes were not actually in circulation till the August following.t
* See the American Almanac for 1830.
t Most of the facts in this chapter have heelJ derived from a series of
essays by Pelatiah Webster. a merchantof Philadelphia, and an uncle of
Noah Webster, the grammarian. They were published at different
intervals, from 1776 to 1780, in pamphlet form, and collected into a
volume, with notes, in 1790.

26

CONTINENTAL MONEY.

Till the issues exceeded nine millions, the bills, aecording to the concurrent testimony of Mr. Jefferson and Mr.
Paine, passed at their nominal value.
The depreciation
afterwards was very great. The rate of exchange for hard
money at Philadelphia, ftom January 1777 to May 1781,
was as follows, according to a table take from the merchants' books and published by Mr. Pelatiah 'Vebster.
1777. January,
February,
March,
April,
May,
J une,
July,
August,
September,
October,
November,
December,
1778. January,
February,
March,
April,
May,
June,
July,
August,
September,
October, November,
December,
1779. January
February,
March,

Ii 17.79. April,
12~,
:May,
2
June,
2~
July,
2~
August, 2~
September,
3
October, 3
November,
3
December,
3 1780. January. 3
February,
4
l\Iarch,
4
April,
5
May,
5
June,
6
July,
5
August, 4
September
4
October, 5
November,
5
December,
5 1781. January, 6
February,
6
March,
7, 8, 9
April,
10
May,
10,11
1~

14,
22,
18,

16,22
22, 24
20, 18
19, 20
20
- 20, 28
30
- 32,45
- 45,38
- 40, 45
- 45, 55
- 60, 65
60
60
60
- 60, 65
- 65, 75
75
- 75, 80
- 80, 100
100
100
100, 120
120, 135
135,200
200, 500

On the 31st of May, 1781, the continental bills ceased


to circulate as money, but they were afterwards bought on
speculation at various prices, from 400 for 1, up to 1000
fot I.
'rhe value of continental paper was not the same in different parts of the country. The exchange was, for example, December 25th 1779, at 35 for 1 in New England,
New York, the Carolinas, and Georgia, and at 40 for 1 in
Pennsylvania, New Jersey, Delaware, Maryland and Virginia.

CONTINENTAL MONEY.

27

An account taken from the books of merchants in Virginia shows that the depreciation there regularly fol!owed
that in Philadelphia, though, towards the close, it sometimes Jagged a month or more behind. Thus, when exchange was at Philadelphia at 100 for 1, in January, 1781,
it was in Virginia at 75 for 1 : and in April, when exchange
in Philadflphia was at 135 for 1, it was in Virginia at
100 for 1.
As late as May, 1781, speculations were entered into at
Philadelphia, to purchase continental money at 225 for I,
and sell it at Boston at 75 for 1.
It is worthy of remark " that the depreciation of continental money never stopped the circulation of it. As long
as it retained any value at aU, it passed quick enough: and
would purchase hard money or any thing else, as readily
as ever, when the exchange was 200 for 1, and when every
hope, or even idea, of its being ultimately redeemed at
nominal value had entirely vanished."
The facility of raising ways and means, in the early part
of the war, by issues of paper, led to much extravagance
ill the commisbary department, and prevented the establishment of a sound system of finance. It is said that when
a proposition was before Congress to estab1ish a regular
revenue system, one member exclaimed, "Do you thinh,
gentlemen, that I will consent to load my constituents with
taxes, when we can send to our printer, and get a waggon
load of money, one quire of which will pay for the whole !"t
Our ancestors were lavish of their blood, in defence of
their rights. If it was through a wjsh to save their
treasure, that they resorted to paper money, they did not
succeed in their object. As a mode of raising revenue, it
might be compared to a tax, the expenses of collecting
which were many times as great as the sum brought into
the treasury. 'fhe benefit the Government derived from
it, was in no way commensurate with the burden it imposed on the people. Most of the loss fell on the Whigs
as it was in their hands the paper depreciated. The Tories,
who had from the beginning no confidence in it, made it
a rule to part with it as soon as possible.
This continental money was, in its true character, a siro... P. ,V.

t lb.

28

CONTINENTAL MONEY.

pIe evidence of debt due by the Government: and may, as


such, in the first stage of its operation, be compared to the
forced loans which the potentates of Europe have at times
extracted from their su bjects. As a forced currency, it
may be compared to the base coin which the same potentates have issued in other seasons of difficulty. The resort
to it can be justified (if it can be justified at all,) only on
the plea of state necessity-a plea so easily made that it
ought never to be admitted without close examination.
It is difficult to believe that a people so devoted to liberty
as were the Americans of that day, would have been backward in their contributions for the necessary expenses of
war, if they had not been taught by some of their leading
men that taxation was quite unnecessary, and that paper
money would supply every financial want. "What a shame
it is" said a patriotic old lady, " that Congress should let
the poor soldiers suffer, when they have power to make
just as much money as they choose."
The best, if not the only excuse, for the policy which
was adopted is, perhaps, to be found in the opinion then
prevalent, that money was something which derived its value from the authority of Government. In no other way
can we apologize for the acts which imposed severe penalties on those who refused to exchange their merchandise
for paper, and which in some instances even outlawed the
supposed offender.
When the continental money was first issued, an expression of doubt as to its value, involved suspicion of disaffection to the cause of the country. As the issues increased,
the prices of goods necessarily rose; but this was attributed
to combinations of the merchants to raise the price of their
merchandise, and to sink the value of continental money.
They were called Tories, speculators, and many other hard
names; and their stores were forcibly broken open, and
their goods sold at limited prices by committees of the
neighbors.
"~"he fatal error" says Mr. Webster, "that the credit
and currency of continental money could be kept up and
supported by acts of compulsion, entered so deep into the
minds of Congress, and all departments of administration
* P. W. Note to Essay of July, 1779.

CONTINENTAL MONEY.

29

through the States, that no considerations of justice, religion, or pGlicy, or even experience of its utter inefficiency,
could eradicate it : it seemed to be a kind of obstinate delirium, totally deaf to every argument drawn from justice and
right, fr Jill its natural tendency and mischief, from common
justice, and even from common sense.
"Congress began, as early as Jan. 11th, 1776, to holdup and recommend this maxim of manaism, when continen
tal money was but five months old. Congress then resolved
that' whoever should refuse to receive in payment continental bills, should be declared and treated as an enemy of
his country, and be precluded from intercourse with its inhabitants,' i. e. should be outlawed: which is the severest
penalty (except of life and limb,) known to our laws.
"This ruinous principle was continued in practice for
five successive years, and appeared in all shapes and forms,
i. e. in tende'I" ads, in limitation of prices, in awful and
threatening declarations~ in penal laws, with dreadful and
ruinous punishments) and in every other way that could be
devised, and all executed with a relentless severity by the
highest authorities then in being, viz. by Congress, by Assemblies and Conventions of the States, and by committees
of inspection (whose powers in those days were nearly sovereign,) and even by military force: and though men of
all descriptions stood trembliug before this monster of force,
without daring to lift a htind against it during all this period,
yet its unrestrained energy always proved ineffectual to its
purposes, but in every case increased the evils it was des'jgned to remedy, and destroyed the benefits it was intended to promote: at best it~ utmost effect was like that of
water sprinkled on a blacksmith's forge, which, indeed,
deadens the flame for a moment, but never fails to increase
the heat and flame of the internal fire. Many tltousand families of full and easy fortune, were ruined by these fatal
measures, and lie in ruins to this day (1790) without the
least benefit to the country, or to the great and noble cause
in which we were then engaged."
After this account of the nature of the system, the reader will readily believe Mr. Webster, when he says, in an
essay published in March, 1780, "Frauds, cheats, and
gross dishonesty are introduced, and a thousand idle ways
of living are attempted in the room of honest industry,

30

CONTINENTAL MONEY.

economy and diligence which have heretofore enriched and


blessed this country."
I n various parts of his essays, he adverts to the Sll frerings of the people from the necessary incidents of the war.
'rhe price of foreign commodities was increased many per
cent. There was" an extreme scarcity and want of some
necessary articles; for example, much meat was spoiled and
lost for want of salt to preserve it: and many trades and
manufactures were either wholly stopped or greatly diminished for want of materials. Another hardship very sensibly felt was the force which was used with all descriptions of men in seizing their goods, wagons, stock, grain,
cattle, timber, and every thing else which was wanted for
the public service. To these may be added the captures,
the ravages, and depredations, the burnings and plunders
of the enemy, which were very terrible and expensive.
They had possession, first or last, in the course of the war,
of eleven of the capitals of the thirteen States, pervaded the
country in every part, and left drea~ful tracks of their
marches behind: burning, in cool blood, a great number
not only of houses, barns, mills, &c., but also of most capital towns and villages." Yet these evils were not as great
in the judgment of lUre Webster, (and he was an eye witness and a participator of these sufferings,) as those which
were caused by continental money and the consequent irregularities of the financial system. " We have suffered
more from this cause" he says, "than from every other
cause of calamity: it has killed more men, pervaded and
corrupted the choicest interests of our country more, and
done more injustice than even the arms and artifices of our
enemies."*
" While we rejoice in the riches and strength of our
country, we have reason to lament with tears of the deepest
regret, the most pernicious shifts of property which the irregularities of our finances introduced, and the many thousands of fortunes which were ruined by it; the generous,
patriotic spirits suffered the injury: the idle and avaricious
derived benefit from said confusioIl."t
Certain compulsory measures of the Executive Council
of Pennsylvania, designed to support the credit of conti*" P. W. Essay of Jan. 8th 1780.

t Note to Essay of Feb. 20th 1780.

BANK OF NORTH AMERICA.

31

nentaI money and of the State bills, gave t.he fatal blow to
the system, in May 1781. l\'1r. Webster gives a minute account of the proceedings; but we deem it unnecessary to
transcribe them, for, as he justly observes, " they will appear to a stranger as intricate and as hard to understand
as the prices of stocks in Change Alley." We dOli ht not,
however, " that they were perfectly understood by people of
all ranks at that time, inasmuch as every variation of the
exchange altered the value of all their cash on hand."
" Thus," he exclaims, after having narrated the proceedings of the Executive Council, and their important effects,
" thus fell, ended, and died, the continental currency, aged
six years. Bubbles of another sort, such as the l\'lississipi
scheme in France, and the South Sea in England, lasted
but a few months, and then burst into nothing: but this
held out much longer, and seemed to retain a vigorous constitution to its last: for its circulation was never more brisk
than when its exchange was 500 to one; and yet it expired
without a groan or struggle; and I believe of all things
which ever suffered dissolution since life was first given to
the creation, this mighty monster died the least lamented.
" If it saved the State, it has also polluted the equity of
our laws; turned them into engines of oppression and
wrong: corrupted the justice of our public administration:
destroyed the fortunes of thousands of those who had the
most confidence in it; enervated the trade, husbandry and
manufactures of our country, and gone far to destroy the
morality tr our people."
Many who are yet hving can attest the truth of this statement.
CHAPTER IV.

Of the Bank of North America.


It is a common opinion that the Bank of North America
rendered essential service during our revolutionary struggle
-that, without it, the achievement of independence would
have been difficult, if not impossible. Assertions to this
effect have been made with so much confidence that we
once believed them to be well-founded; but on examination we find-

32

BANK OF NORTH AMERICA.

First. That the capture of Cornwallis, which is described


by historians as the closing scene of the }{evolutionary
War, took place on the 9th of October, 1781, and that the
Bank did not go into operation tin January 7th, 1782.
Secondly. 'rhat the whole amount of expenditures of the
U. S. Government in the year 1782, was only three million
six hundred thousand dollars, and in 1783 only three million two hundred thousand dollars. Large loans were negotiated in Europe in these years; " and such a conviction
of the necessities of public supplies generally took place
through the States, that considerable sums were obtained
by a tax on polls and real estates."*
Thirdly. The whole amount subscribed by individuals
to the Bank did not, as appears from the concurrent testimony of Mr. Robert Morris and lVir. Gouverneur Morris,
exceed 70,000 dollars.
Fourthly. From statements made by Mr. Robert l\torris,
in public debate in the Legislature of Pennsylvania, in the
year 1786, it appears that the advances made by the Bank
to the Government, above the amount of silver money actually paid in by the Government, never did exceed 165,000
dollars, and for a part of the time did not amount to 50,000
dollars.t
The reader, on duly considering these facts, will probably be convinced that the services rendered by the Bank of
North America, during our revolutionar.y struggle, have
been grossly exaggerated.
From the beginning of the year 1780, till the close of
the war, hard money was very plenty. This" was occaif

P.W.

t From the statements of Mr. Robert lUorris, the accounts of the Government with the Bank were as follows:
Cr.
Dr.
47,082
APlil 2d, - 1782 - 252,918 300,000
147,082
July
- 1782 - 252,918 400,000
146,606
-October
- 1782 - 253,394 400,000
46,606
January
- 1783
53,394 100.000
46,606
April
- 1783
53,394 100,000
J29,800
July
- 1783
129,800
164,781
October
. 1783
164,781
January 1st. 1784, the debt was discharged.
The last column shows the amount in which the Government was in
debt to the Bank, at the different periods mentioned.

BANK OF NORTH AMERICA.

33

sioned by large sums, by various means, coming from the


English army at New York, and spreading through the
States; also by large sums remitted by France to their army
and r-avy here; also by large importations of hard money
from the Havanna and other places abroad; so that hard
money was never more plenty nor more easily collected
than at that time." In a note to an essay of later date,
Mr. Webster says, "the States were really overrun with
abundance of ca5h: the French and English armies, our
foreign loans, Havanna trade &c., had filled the country
with money."
"It has been asked," says Lord Sheffield, "what has
become of the money which we have sent during the war
to America 1 Some is come back-a considerable part is
the circulating cash within our. lines. l\Iany British subjects in New York have very large sums in their possession. The Dutch and Germans, whose number is not inconsiderable, have hoarded up-and it is believed considerable sums are concealed.
" France sent (not included in the debt) above 600,000
pounds sterling in specie to America, being obliged to send
cash."*
The operations of the war caused such a drain of specie
from Europe, that the Bank of England was brought into
jeopardy, and the Caisse d' Escol/lptc at Paris actually
suspended payment in 1783: and such a flux of specie into
the United States, that, as l\lr. "\Vebster observes, "hard
money was never more plenty or more easily collected."
Such being the state of the money market. it is difficult
to believe that the Government might not, if the Bank had
not been established, have obtained a loan of 50,000 to
165,000 dollars from some other source. It does not appear that the Bank ever made advances to the Government,
except on the best security. For at least 80,000 dollars of
the amount, the:State of Pennsylvania was guarantee. For
the residue of the amount, the Government might have
pledged the proceeds of the taxes, or bills on Europe: and
on the same security, it is probable, individuals would have
made the advances, especially as money was so abundant,
and the news of peace confidently expected.
if Observations on the Commerce of the American Statei.
1783.

June 21st

34

BANK OF NORTH AMERICA.

'"rhe truth is, that the project of establishing a Bank in


Philadelphia had been conceived by ~ir. Robert Morris,
before the commencement of the war, as appears from his
own declaration :* and he had entered into negociations in
Europe with a view to effect this object. But a project
for a Bank about the year 1763, had been vigorously opposed on the ground that it would give a few men a
monopoly of trade: and it is probable that l\1r. Robert
Morris's project would have encountered severe opposition,
if it had not been brought forward as afiscal measure, and
at a time when neither the Legislature nor the people could
give it that consideration it deserved.
lie submitted his plan to Congress in lVIay, 1780, and
on the 26th of the saIne month it was approved by that
body. "Yet," he says, " until the month of September or
October following, there were not more subscriptions in
the whole, than amounted to about 70,000 dollars. During
the time, one of his most Christian 1\'Iajesty's frigates arrived at Boston, and brought a remittance in specie of
about 470,000 dollars. The sum \vas brought to Philadelphia and deposited in the vaults of the Bank. I determined from the moment of its arrival, to subscribe on behalf of the United States, for those shares in the Bank
which remained vacant: but such was the amount of the
public expenditures, that notwithstanding the utmost care
and caution to keep this money, nearly one-half of the sum
was exhausted before the institution could be organized.
In November, 1781, the president and directors of the
Bank were elected: they obtained a charter of incorporation from Congress-and opened the Bank for transacting
business in January, 1782. I subscribed the sum then
remaining in the treasury, being about 254,000 dollars,
into the Bank stock, per account of the United States,
which became thereby the principal stockholder."t
As is remarked by Mr. Gouverneur Morris, the sum subscribed by Government may be said to have been paid in
If See Carey's "Debates and Proceedings of the General Assembly
of Pennsylvania, on the memorials praying a repeal or suspension of
the law aUllulling the charter of the Bank." Phil. 1786.

-t It may be made a question, whether the whole of the original capital


of the Bank was not advanced by Government. Thomas Paine says,
ill one of his tracts, it is well known "that the Bank originated in
another Bank called the Bank of Pennsylvania, which was formed in

BA~K

OF NORTH AMERICA.

35

with one hand, and borrowed with the other, leaving the
Bank but 70,000 dollars at most for its proper operations.
On this amount it undertook to make advances to the Government and to individuals; but as the experience of the
evils of continental money was fresh in the minds of the
people, some difficu~ty was encountered in giving currency
to the notes of the Bank. To remo\;e this" prejudice" the
gentlemen who were interested in the institution, '''ere, as
\ve have learned from undoubted private authority, in the
practice of requesting people from the country and laboring
men about town, to go to the Bank and get silver in exchange
for notes. 'Vhen they went on this errand of neighborJy
kindness, as they thought it, they found a display of silver
on the counter, and mcn employed in raising boxes containing sil vel', or supposed to con tain sil rer, from the cellar into the Banking room, or lo,vering them from the
Banking room into tbe cellar. By contrivances like these,
the Bank obtained the reputation of possessing immense
wealth; but its hollowness was several times nearly made
apparent, especially on one occasion, when one of the copartners withdrew a depo~it of some five or six thousand
dollars, when the whole specie stock of the Bank did not
probably exceed twenty thousand.
By these means, and by the assistance of the United
States Government, the notes of the Bank became current;
the spring of 1780. On the 17th of June, it was resolved to open a
security subscription to the amount of 300,000 pounds Pennsylvania
currency, in real money, the subscribers to execute bonds for the amount
of their subscription, and to form a Bank for snpplying the army."
He afterwards speak::; of some of these subscriptions being transferred to
the Bank of North America.
From the journals of Congress, it appears that the Board of Treasury
was directed to deposite in this Pennsylvania Bond-Bank, "hills of exchange, in favor of the directors thereof, on the ~Iinisters of the United
Slates in Europe, or any of them, and in such sums as shall be thought
convenient, but not to exceed in the whole 150,000 sterling."
\Vere the 70,000 dollars which were subscribed by individuals to the
Bank of North America, paid in bonds or in money? \Vas a part of the
470,000 dollars received by the French frigate, used in redeeming some
of these bonds: and was it in this way subscriptions were transferred
from the old Bond Bank to the Bank of North America: or were the
70,000 dollars paid ill by individuals without any trafficking with Govern.
ment? These questions are, perhaps, rather curious than useful: but
our knowledge of the contrivances for forming Balik stock in our own
day, makes us desire to see an explanation of the 70,000 dollars sub.
scription by iudividuals.

36

BANK OF NORTH AMERICA.

and so profitable was the business that the early dividends


were at the rate of from 12 to 16 per cent. per annum.
This naturally created a desire in others to share in so very
lucrative a trade. A project was therefrom formed for
establishing a second Bank, to be called- the Bank of Pennsylvania. This, they who were interested in the Bank of
North America strenuously opposed, fearing the effect of
a rival institution in Philadelphia. To prevent its being
established, they opened their books for additional subscriptions; but not without murmuring loudly at the hardship of receiving new partners.:It'
In the year 1784, the Bank did a very extensive businsss; and by the beginning of 1785, the effects of its operations began to be very apparent. They are such as
The following is an extract from a pamphlpt. published in 1785,
entitled an " Address to the General Assembly of Pennsylvania, on the
abolition of the Bank Charter."
"After the peace, when the ad vantages of the Bank had been felt,
and the property of the stock had become .secnre, an opposition was
raised by some of the same persons who are now the opposers, but on
grounds somewhat different. For then, instead of considering the Bank
as pernicious, it was considered to be so highly beneficial that they must
needs have two. They did indeed complain of the old Bank. But for
what 1 Not because the capital was so large as to threaten general ruin:
but because the directors would not open a subscription to make it larger.
And what was the modest request of that day? Why, truly, such an
e1ten~ion of the capital as might enable those who had waited for events
in perfect ease and safety, to enjoy the same advantages with those who
had borne the burden. and run the risk of the contest. It was, indeed, a hard case that many worthy gentlemen who would not have
given a shilling to save the State, should be obliged to pay either $500
for a share in Bank which had cost but four, or to lend their money on
bond and mortgage to the farmers of Pennsylvania. A very hard case i
Aud so loudly did they complain of it, that at last many sensible members of Assembly were prevailed on to believe it would be a good thing
to have two Banks. 'rwo shops to go to, for that was the fashionable
phrase. And they were the more easily led into this opinion, because
it was laid down by some in high stations, for whose sentiments they
had acquired a h.abitual respect.
" The consequence of the noise made at the time, must be well remembered. The Assembly were plagued with long arguments on both
sides which might have been spared, and then, all at once, the thing
was hushed up and accommodated. Because, such of the promoters of
the new Bank as had mouey, found out their new friends had none.
Because they all found out the scheme did not promise so much either
of security or profit, as was imagined. And because they had not too
much confidence in each other, being (like Nebuchadnezar's image)
composed of discordant materials. They agreed, therefore, to abandon
their project, on certain conditions acceded to by the old Bank, one of
which was to extend the subscription, and this it is which has convert-

BANK OF NORTH AMERICA.

37

Banking has always produced-a temporary plentifulness


of money, followed by great scarcity, usury, ruin to the
many, riches to the few. These effects were ably set forth
in petitions to the Assembly, from the inhabitants of Philadelphia, and those of the counties of Chester and Bucks,

presented on the 21st and 23d of ~larch, praying for a


repeal of the charter of the Bank. Those petitions were
referred to a committee, who, in a report of the ~5th of the
same month, fully sustained the allegations of the petitioner~, and recommended a repeal of the charter. This recommendation was carried into effect, at the ensuing session,
on the 13th of September, 17'85.
Thus we find that the firf't Bank established in this
country produced so much evil, that its charter was taken
from it in less than four years after it had commenced
operations.
The Bank, however, claiming the right of prosecuting its
business under the act of Congress, continued its operations, though on a more moderate scale. In 1786, an attempt was made by its friends to obtain a renewal of the
charter from the State of Pennsylvania, but it was successfully opposed by W m. Findlay of 'Vestmoreland, l\Ir. Smilie
of the same county, and other leading democrats. It is
difficult, however, for the people long to withstand the
efforts of a powerful monied interest: and it being pleaded,
with some show of reason , that the forms of the Constitution
had not been properly regarded in taking away the charter,
and many persons fearing a return of the old paper money
system, the Bank was re-incorporated on the 17th of March,
1787, with limited powers, and for fourteen years. By
successive acts of the Legislature, it has been continued
in existence to the present day.*
ed all the surplus money of the State into Bank stock. For otherwise,
let the price of a share have risen ever so high, nay, had it gone to
4000 instea.d of 400 dollars, not one penny would have been added to
the Bank capital. But in proportion as stlJck rose, the dividends would
have been less valuable.
" It is notorious that if the Directors had not been under cDmpulsion,
they would not have extended the subscriptions beyond the first 400,000
dollars. It is notorious that any addition to the number of shares lessens
the value of each."
-If For further particulars respecting the early history of the Bank of
North America, see Appendix.

38

OLD BANK OF THE UNITED STATES.

CHAPTER V.

Of tlte Old Bank of tlle United States.


"_ Let the Americans," said W m. Pitt, " adopt their funding system, and go into their Banking institutions, and
their boasted independence will be a mere phantom."
No small number of Americans were of a similar opinion: but it was contended by others, that if the revolutionary debt was not funded, injustice would be done to
the public creditors. Out of this funding system sprung
the old Bank of the United States, for three-fourths of its
capital consi3ted of public stocks. The Bank, its friends
averred, was necessary to support the public credit, and
aid the fiscal operations of the Federal Oovernment. Its
opponents contended that it was anti-republican in its tende~cy, and that the Constitution gave Congress no power to establish such an institutiGn.
The period immediately succeeding the Revolutionary
War, was, in a peculiar sense, an age of speculation.
Trafficking in soldier's certificates, in the public lands, and
in the various evidences of the public debt, was the business of many who had money, and of many who had not.
Perhaps the fortunes some thereby acquired, may have excited envy, and thus increased the opposition to the system
which had its origin with some in political, and with others,
in moral reasons. Be this as it may, the Bank of the United
States was regarded as the cap-stone of a policy which
was viewed as very objectionable: and the democratic
journals of the day abounded in what one of our most respectable authors calls" abuse of the Banking and funding system."
Mr. Jefferson's opposition to Banks was of the most decided character. In his preface to Destutt Tracy's Political Economy, he denounces them as parisitical institutions:
and he seldom let slip an opportunity of expressing his abhorrence of their whole scheme of operations. His objections to the Bank of the United States on constitutional
grounds were equally strong. "I consider," he says, ct the
foundation of the Constitution as laid on this ground, that
" all powers not delegated to the United States by the Con-

OLD BANK CF THE UNITED STATES.

39

stitution, nor prohibited by it to the States, are reserved


to the States or the people." To take a ~ingle step beyond
the boundaries thus specially drawn around the power of
Congress, is to take possession of a boundless field of
po\ver, no longer susceptible of definition. The incorporation of a Bank, and other powers assumed by this Lill,
have not, in my opinion, been delegated to the United States
by the Constitution." After showing that the powers were
not among those specially enumerated, nor in any of the
general phrases, he says" It is known that the very power
now proposed as a means was rejected as an end by the
Convention which formed the Constitution: a proposition
was made to them to authorize Congress to open canals,
and an emendatory one to empower them to incorporate;
but the whole was rejected, and one of the reasons urged
in the debate was, that then they would have power to
create a Bank, which would render the great cities, where
there were prejudicies or Jealousies on this subject, adverse
to the reception of the Constitution."
The Bank was not established by a strict party vote,
for eleven out of thirty-nine who voted for it were democrats, and six out of twenty, who opposed it, were federalists; but it afterwards became, as 1\1 r. Niles says, one of
the landmarks of party, and, in the second Congress, a
resolution declaring the Bank charter unconstitutional, was
within one vote of passing the House.
The hostility of the democratic party to the Bank, waB
but little abated for many years; but, as the time approached for the expiration of the charter, enmity to the institution gave way, in a great degree, to fear of the distres:5
which the winding up of its affairs would produce. The
pens of numerous ::lcribes were employed in portraying the
manifold evils which must come upon the country, and
deputations of merchants and mechanics were sent from
Philadelphia to Washington, to beg Congress to avert the
impending danger. *
11- See the public papers of the day.
Of the feeling with which a portion of the community regarded the
prospect of a non-renew:}l of the Bank charter, an opinion may be
formed from the following extract from a pamphlet, by Mr. Carey, entitled "Desultory Reflections upon the Ruinous Consequences of a
Non-Renewal of the Charter of the Bank of the United States," published in l\Iay, 1810.

40

OLD HANK OF THE UNITED STATES.

The predictions that were so confidently made of the


ruin that would overspread the land, if the charter were not
renewed, had their intended effect on some of the demO'cratic members. But, after a full discussion, the bill was
indefinitely postponed on the 24th of January, 1811, in the
House of Representatives, by a vote of 65 to 64. The National Intelligencer said, on recording the vote, that if the
question had not been on the indefinite postponement, but
"In the history of nations, as well as of individuals, there are to be
found occasional moments of frenzy, in whic.h every movement baffles
the calculations of the politician, the moralist and the philosopher. To
the distractions and derangements of our affairs with the European worM
we are, with almost incredible folly, preparing, by allowing the charter
of the Bank of the United States to expire, to add an awful scene of
internal disorder and confusion, of private and public bankruptcy. I
have gone over my calculations anew; sifted the facts on which my
opinions are founded: turned them in every possible point of view, to
discover errors if any there were. But the result of every examination
has been an invariable conviction of the reality of the danger, the momentary frenzy of too many of my fellow-citizens, and the awful consequences of the prevailing apathy, if it should continue."
By the next session of Congress, Mr. Carey's fears were in no degree
abated, as will be seen by the following extract from another pamphlet,
published December 15th,
and etititled "Nine Letters to Dr.
Adam Seybert, Representative in Congress for the City of Philadelphia."
"Nevel have I addressed my fellow-citizens with more solicitude
than I feel at present. The question at issue, respecting the renewal
of the charter of the Bank of the United States, in its consequences
upon the character of the cuuntry, and upon the prosperity and happiness of a large purtion of its most valuable citizens, I conceive to be of
more importance than anyone that has been agitated for twenty years."
He then intimates to members of Congress from parts of the country
remote from the operations of Banking, "that they are liable to be be
wildered and led astray; to be instrumental in dashing the Bank of public credit upon rocks and quicksands, and producing an awful scene of
destruction, the consequences or terminations of which elude the power of
calculation. At such a crisis, it behoves every m:m whose experience
in any degree qualifies him to shed light upon the sUbject, to step boldly forward, and use hilS endeavors to preserve so many vital interests as
are at stake from the destruction which menaces them. In such a
cause, indifference and guilt would perhaps be synonymous. Influenced by the~e motives, and unalterably convinced of the reality of the
impending min, I resolved, at the risk of the abuse, the calumny, the
malignity, and the persecution, to which every man is liable, who, on
such occasions, takes an active part, to raise my feeble voice in defence
of a good caulie. I fully resolved that, come the calamity when it
might, I should be able to wash my hands from any participation in the
guilt, evel1 by neutrality."

uno,

OLD BANK OF THE UNITED STATES.

41

on the passage of the bill, the majority would have been


much greater.
Another bill was brought before the Senate; but, on the
20th of February, the first section was struck out by the
casting vote of the Vice President, George Clinton.
The Senate gave this vote, which was equivalent to a
rejection of the bill, only eleven dayg before the charter expired. The Bank made application in this interval for such
an extension of its charter as would enable it to wind up
its concerns. But the Committee of the House to whom
the nlemorial was referred, reported, through their Chairman, Mr. Henry Clay, "that, holding the opinion, (as a
majority df the Committee do,) that the Constitution did
not authorize Congress originally to grant the charter, it
follows as a necessary consequence of that opinion, than an
extension of it, even under the restrictions contemplated
by the stockholders, is equally repugnant to the Constitution."*
Trustees were then appointed, and they proceeded so
rapidly in winding up the concerns of the Bank, that on
the 1st of June, 1812, they paid over to the stockholders
70 per cent. of the capital stock, and 18 per cent. more on
the 1st of October.t
This was a rapid collection of the debts due to the institution, inasmuch as it enabled the trustees to pay 88 per
cent. of the capital stock, in about a year and a half; but
it did not produce the universal ruin with which the country had been threatened. "Many persons" said Dr. Seybert, writing in 1816, "viewed a dissolution of the late
Bank of the United States as a national calamity; it was
asserted that a gp,neral bankruptcy must follow that event.
The fact was otherwise: every branch of industry continued uninterrupted-no failures in the mercantile community were attributable to that occurrence."t

* Legislative History of the Bank of the United States.


t Another instalment, amounting to 7 per cent., was paid on the 1st
of April, 1813. An additional payment of 5 per cent. was made in April,
18]5, and another of 5 per cent. in December, 1817. Two or three
small payments, f)f the exact amount of which we are not informed,
were subsequently made. Some years before the expiration of the
charter, the stock sold at 156.
t Statistics, pp. 522.

42

BANKING FROM

1780 TO 1810-11.

CHAPTER VI.

Of Banking from 1790 to 1810-11.


In Vol. III of the American edition of the Edinburgh
CyclQpedia, published in 1813, the following table is given,
" to exhibit in one view the names of the BankS" most deserving of notice, the time of their institution, and the
amount of their capital." The table is not complete, but
it shows the time in which the Banking system was introduced into the different States.
~aDk

Names.

of North America, Pa.


l\lassachusetts Bank at Boston, Mass.
Bank of New York, N. Y.
B.ank of Maryland, Md.
Providence Bank,R. I.
Bank of Albany, N. Y.
Bank of South Carolina, S. C.
Union Bank of BostoD, Mass.
New Hampshire Bank, N. H.
Bank of Alexandria, Va.
Hartford Bank, Conn.
Union Bank, New London, Coon.
New Haven Bank, Conn.
Bank of Columbia, N. Y.
Bank of Columbia, D. C.
Bank of Pennsylvania, Pa.
Bank of Nantucket, Mass.
Bank of Delaware, Del.
Bank of Baltimore, IUd.
Middletown Bank, Coon.
Bank of Rhode Island, R. I.
No.wich Bank, Conn.
Manhattan Bank, N. Y.
Portland Bank, Me.
Essex Bank, Salem, Mass.
Washington Bank, Westerly, R. I.
Bank of Bristol, R. I.
Exchange Bank, Providence, R. I.
Farmers' .Bank, Lansinburgb, N. Y.
State Bank of South Carolina, S. C.
l\laine Bank, Portland, Me.
New Hampshiro Union Bank, N. H.

Instituted.

1781-2
1784
1784
1790

1791
1792
1792
1792

1792
1792
1792

1792
1792
1793

1793
1793
1795
1795

1795
1795
1795
1796
1799

1799
1799
1800
1800
1801
1801
1801

1802
1802

Capital.

$ 2,000,000
1,600,000
950.000
300~OOO
400,000
260,000
640,000
1,200,000
100,000
500,000
930,000
500,000
400,000
160,000

500,000
3,000,000
100,000
110,000

1,200,000
400,000
100,000
200,000
2,000,000
300,000
300,000
50,000
120,000

400,000
75,000
800,000
300,000
200,000

BANKlNG FROM 1790 TO 1810-11.


Names.

Lin and Ken Bank, \Visca"set, 1\Ie.


Kentucky Insurance Company, Ky.
Merchants Bank, N. Y.
Bedford Bank, at N. n., Mass.
New YOl'k State Banl{, N. Y.
Newburyport Bank, Mass.
Saco Bank, .Mass.
Albany Mercantile Comp., N. Y.
Plymouth Bank, Mass.
Boston Bank, Mass.
Staffol'd Bank, at Dover, Mass.
Philadelphia Bank, Pa.
l\liami Exporting Comp., Cinn. O.
Salem Bank, Mass.
Roger \Villiams' Bank, R. I.
Newport Bank, R. I.
\ValTen Bank, R. I.
Exeter Rank, N. H.
Union Bank of 1'1 aryland, Md.
Bank of Cape Feal" N. C.
Bank of Newbern, N. C.
Newark Bankin~ and Ins., Co. N.J.
Trenton Rank, N. J.
Hallowell and Augusta Bank, Me.
\Vorcester Ban k, Mass.
Nantucket llacific Bank, 1\la5s.
Marblehead Bank, Mass.
Rhode hland Union l~an k, R. I.
Smithfield Union Bank, R. I.
Narragansett Bank, R. I.
Rhode Island Central Bank, R. I.
Hank of Virginia, Va.
Mechanics' l{ank, Baltimore, IUd.
Bank of Chilicothe, Ohio
Jhidgeport Bank, Conn.
Derhy Bank, Conn.
Bank of Kentucky, Ky.
Bank of Na-.hville, Ten.
Bank of .Marietta, Ohio
Farmers Bk. of the State of Del., D.
New Bunswick Bank, N. J.
Farmers and Mechanics Bank, Po.
Hagerstown Bank, 1\1d.
Mohawk Bank, N. Y.
New London Bank, Conn.

Hudson Bank, N. Y.

43

Instituted.

Capital.

1802
1802
1S03
1803

$ 200,000
150,000
1,250,000
150,000

1803

460,000

1803

550,000

1803

100,000

1803
1803
1803
1803
1803
1803

1803
1803
1803
1803

1804
1804
1804

1804
1804
lS04

1804
ISO!
1804
1804

1805
1805

lR05
1805
180G
1806
]806

1806
1807
1807

1807
1807
1807
1807
1807
1807
1807
1808

25,000

100,000
1,800,000
150,000
2,000,000
200,000
200,000
150,000
120,000
68,000
200,000
3,000,000
350,000
300,000
225,000
300,000
200,000
150,000
)00,000
100,000
150,000
50,000
60,000
60,000
1,500,000
1,000,000
100,000
200,000
200,000
1,000,000
500,000
100,000
500,000
150,000
1,250,000
250,000
200,000
200,000
300,000

44

BANKING FROM 1790 TO 1810-11.


Names.

Bank of Steubenville, Ohio


Chambersburgh Bank, Pat
(}'ommercial Bank, R. I.
State Bank of North Caro1i~a, N.C.
Commer. & Farm. Bk. of Balt,Md.
Farm. & Merch. Bk. of BaIt., Md.
Franklin Bank,
Do.
Marine Bank,
Do.
Elkton Bank, Md.
Farmers' Bank of Lancaster, Pat
Mechanics' Bank, N. Y.
Bank of T.'oy, N. Y.
Mechanics' & Farmers' Bank, N. Y.
State Bank at Boston, Mass.
Merchants' Bank at Salem, Mass.
Cumberland Bank of Alleghany, Md.
Bank of Newburgh, N. Y.
Fa.'mers' Bank of Wore & Some Md.
Middle Distl"ict Bank, N. Y.
Bank of New Orleans, L.
Uuion Bank, N. Y.
Eagle Bank, Conn.
Bank of America, N. Y.
vity Bank, N. Y.
Farm. and Meehan. Bk. of Cinn., O.
Bank of Muskingum, Zanesville, O.
Monongahela Bank, O.
New York Manufacturing Co., N.Y.
Camden State Bank, N. J.
Trenton
Do.
Do.
New Brunswick State Bank, N. J.
Newal'k
Do.
Do.
Elizabeth
Do.
Do.
Mo.'ris
Do.
Do.
Utica Bank, N. Y.
Pittsburg Manufacturiug Co., Pat
City Bank of Baltimore, Md.
B. of \Vil'gton and Brandywine,Del.
Farm. & Meehan. Bank of Del., D.
Commercial Bank of Del., D.
Farm. & Mechan. Bk. ofVa.,V.
Savannab Bank, Geo.
Union Bank, 8. C.
Planters' and l\lecbanics' Bank, S.C.

Instituted.

1809
1809
1809

1810
1810
1810
1810
1810
1810
1810
1810
1811
1811
1811
1811
1811
1811
1811
1811
1811
181l
1811
1812
1812

1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812
1812

Total,

Capital.

$100,000
250,000
50,000
1,600,000
1,000,000
500,000
600,000
600,000
..300,000
300,000
2,000,000
500,000
600,000
3,000,000
200,000
200,000
400,000
200,000
fiOO,OOO
500,000
1,800,000
750,000
6,000,000
2,000,000
500,000
100,000
250,000
1,200,000
800,000
300,000
400,000
400,000
200,000
200,000
1,000,000
1,000,000
1,500,000
120~OOO

75,000
200,000
1,500,000
1,000,000
1,000,000
),000,000
$77,258,000

BANKING FROM 1790 TO 1810-11.

45

The operations of Banks in those times, were much like


their operations in our own days. Thus, ~Ir. Burwell, of
Virginia,in a speech delivered in 1811, said, " In Baltimore,
where the Bank capiml has always exceeded the demand
by solvent customers, and where, to give full employment
to their funds, the Banks have been accustomed to accommodate mere speculators, failures have happened to the
amount of a million, without property to pay the creditors
twenty cents in the dollar. (A gentleman [rain l\Iaryland
corrected Thlr. Burwell, by stating that the failures had in
the aggregate exceeded t:w sum he had mentioned, but in
no single instance had the loss to creditors exceeded
600,000 dollars.) I stand corrected only GOO,000 dollars."*
It was in New England, however, that Banking operations were carried furthest. The author of a pamphlet,
entitled" llemarks on Money," published at Philadelphia
in 1814, says, some of the institutions in that quarter issued
bills for so small a sum as twenty-five cents, whereby" it
was rendered so difficult in some of the Eastern States, to
get a dollar changed, that it became necessary to purchase
change of the money dealers in towns for current travelling expenses in the country."
Of the principles of operation of some of these iW3titutions, we have a curious memorial in a report made on the
20th of March, 1809, by a committee of the Legislature
of Rhode Island, appointed to inquire into the situation of
the Farmers' Exchange Bank of Gloucester. The Committee
state, "that the said Bank was incorporated, February, A. D.
1804. That by the charter, its capital stock was to consist of
two thousand shares of fifty dollars each, payable in seven instalments, in gold or silver. It appears to the Committee
that the capital stock was not paid in according to the provisions of the charter. Some of the stockholders paid the
whole amount of the shares by them subscribed; others
paid a part and gave their notes for the residue. The
directors did not pay any money whatever, for although,
in common with the other stockholders, the directors lodged
the amount of their first instalment in specie, yet, in a
very few days afterwards, all the directors received out of
the Bank the amount of said instalments in bills of said
1f

Legislative HistorJ of United States Bank.

46

BANKING FROM 1790 TO 1810-11.

Bank, for which no security whatever was given, and they


gave five notes, without indorsers, for the five first instalments, payable on demand with interest: for the two last
instalments, no payment was made or security given. The
said l1otef3 remained in the Bank until the directors transferred their stock, when they were delivered up in the
manner hereinafter mentioned. The directors were the
holders of one hundred and three shares each, and in this
manner did the Farmers' Exchange Bank, which by the
charter was to consist of two thousand shares, commence
its operations with only six hundred and sixty-one shares,
on which any payments had been made in gold and silver,
agreeably to the express provisions of the charter: and the
whole money paid into the Bank at anyone period whatever,
on the said six hundred and sixty-one shares, amounted to
nineteen thousand one hundred and forty-one dollars and
eighty-six cents.
" Prior to the twenty-ninth of March 1808, sundry stockholders, holding four hundred and fifty shares, transferred
them to the directors of said Bank. No money or other consideration whatever was paid by the directors with their
own property to any of the stockholders who so transferred
their shares, but they were uniformily paid for with the
property of the corporation. Most of the said stockholders were indebted to the Bank in notes, and to them their
notes were given up, and if their shares exceeded. the sum
due from them to the Bank, the balance was paid out of
the Bank with the property of the corporation: and none
of the said directors, or any person whatever, was debited
for the said sums so paid, or for the notes surrendered.
"On the third day of June, 1805, the Board of Directors passed a vote permitting each director to take out of
the Bank 200 dollars for the purpose of exchanging the
the same. The said directors have never paid or account..
ed for said money to the Bank.
"When the Bank first commenced its operations, the
capital paid in, including the money paid by the directors,
and which was soon &.fter repaid to them, as is herein before stated, amounted to the sum of eleven thousand eight
hnndred and six dollars and sixty one cents: when the
directors had, as before stated, taken back in bills the
amount they had paid in specie for their first instalment..

BANKING FROM 1790 TO 1810-11.

47

the capital stock really paid in, amounted to only the sum
of three thousand and eighty-one dollars and eleven cents.
"The directors never declared any certain dividend of the
profits of the Bank, but once a year paid to the stockholders
interest generally at the rate of eight pel' cent. per annum

on the sums they had respectively paid in, and the residue,
amounting in some years to one hundred and thirty dollars
each, the directors divided among themselves.
" According to the books containing the weekly state of
the Bank, there were several periods when the amount of
bills in circulation far exceeded the amount of notes due
the Bank; for instance, on the twenty-fifth day of l\farch,
1805, the amount of bills in circulation was seventy-two
thousand two hundred and eleven dollars, and the amount
of debts due the Bank was fifty-three thousand two hundred and seventy-five dollars: at some periods, anterior to
the ~9th day of l\Iarch, 1808, the Bank had in circulation
from sixty to seventy thousand dollars. On the 28th day
of March 1808, there was in said Bank, in specie and
bills of other Banks, three hundred and eighty dollars and
fifty cents, and the Bank had twenty-two thousanf! five
hundred and twenty-four dollars of their own hills in circulation."
Under this system, the Bank continued in operation about
four years: and then eleven of the directors transferred their
interest in the institution to the agent of Andrew Dexter,
jun., of Boston. Each of the directors received thirteen
hundred dollars in consideration of his transferring his
shares; and each of them received back the notes he had
given for instalmeIJts, the whole principal and interest
whereof were then due to the Bank. "The thirteen hundred dollars were paid to some of the directors by notes
signed by Simon Smith and John Harris, as principals,
and Andrew Dexter, jun., as surety: to others by surrendering them notes given by the Bank for money borrowed,
and to others by giving them the notes of individuals which
were the property of the Bank. It appears that all the money
paid to the said directors, was paid out of the Bank with t~
property of said corporation, except that there is charged
to said Dexter, three thousand seven hundred and eightyfive dollars and ninety-five cents paid on that account."
Dexter thus got control of the institution, and having a
Board of Directors disposed to favor his views, he got from

48

BANKING FROM

1790

TO

1810-11.

the Bank, at divers times in the course of the year, its bills
to the amount of seven hundred and sixty thousand two
hundred and sixty-jive dollars, and there was paid to sundry
persons for his use three thousand seven hundred and eighty-five dollars and ninety-five cents."
" From the first connexion of Dexter with the Bank, he
appears, by himself and his agents, to have had the entire
control and management thereof: all his schemes and
plans, however wild and extravagant, were adopted and
~arried into execution without reserve: those of the directors who still pretended to superintend the concerns of the
Bank took no care whatever to guard the interest of the
stockholders or the public.
" Dexter was furnished with as much money as he thought
proper to demand, and prescribed his own terms as to the
security he gave, the rate of interest, and the time and manner of payment. The greatest secrecy was used respecting his negotiations at the Bank to prevent the public from
being alarmed at the immense sum of money which was
so suddenly put in circulation; and at the request of Dexter, the Cashier signed the bills secretly and chiefly in the
night. Dexter never gave any security whatever, except
his own name, for any money received by him from the
Bank. For the first sums delivered Dexter gave his re
ceipts: for other sums he gave receipts to the following
purpose, that he would employ the money as their agent for
their benefit, paying them six per cent. interest therefor, and
redeeming the bills by paying specie for them as often as
they returned to the Bank, the cost of redemption to be paid
by the Bank. After these receipts had been standing for
some time they were taken up by Dexter, and a note given
by him for the whole amount, of the tenor and effect following. "I, Andrew Dexter, jun., do promise the President, Directors and Company of the Farmers' Exchange
Bank, to pay them, on order, - - dollars, in two years from
the date, with interest, at two per cent. per annum: it being however understood, that said Dexter shall not be called upon to make payment until he thinks proper, he being
the principal stockholder, and best knowing when it will
be proper to pay the same." The said note was afterwards given to Dexter, and a note given by him for jive
hundred and seven thousand seven hundred and seventy-one
dollars, bearing date on the 30th of November, 1808 : all

BANKING FROM 1790 TO 1810-11.

49

the money received by Dexter after that time was delivered to him by order of Harris and Fairbanks, the last of
which was delivered on the 9th of February, 1809, for which
Dexter gave his notes, which are now remaining in the
Bank: one bearing date on the 4th of November, 1808,
for three hundred thousand dollars: one bearing date on
the 30th of the same month for thirty-two thousand dollars,
and one bearing date on the 12th day of December, 1808,
for six thousand dollars: all which notes amount to the
sum of eight hundred and fifty-five thousand sct'en hundred
and seventy-one dollars, payable in eight years from their
respective dates, bearing interest at and after the rate of
two per cent. per annum.
" Out of the amount above stated, as due from the said
Andrew Dexter, jun. to the Bank, ought to be deducted certain drafts or orders drawn on said Dexter by the Cashier,
to take up the bills at different times returned to the Bank,
so far as the said drafts or orders have been paid by said
Dexter. The amount of said drafts or orders, according
to the books of the Bank, still outstanding and unsettled, is
two hundred and four thousand and five dollars, but of
this sum the Committee have no means of ascertaining what
part has been paid by the said Dexter.
"In December, 1808, the credit of the Bank had become very low, and the bills were selling at a large discount: but the said Andrew Dexter, jun., and the other persons who managed the affairs of the Bank, instead of putting
a stop to the emission of thei-r bills, and making some provision for the payment of those in eirculation, redoubled
their efforts to circulate sums to a large amount, when at
the same time they refused the payment of the smallest
sums at the Bank.
" The President and Cashier were incessantly employed
in signing bills :" and" Dexter was continually urging them
to sign bills as fast as possible," telling them that every thing
depended on his having them vf'ry speedily: that if they
were not soon finish~d, he should not be able to dispose of
them, and that at that time he should be able to sell some
of them very well. The bills were made with so much
precipitation, and the officers of the Bank were so much
pressed for time, that said bills were in some instances sent
to Boston without being dated or numbered.

50

llANKING FROM

1790 TO 1810-11.

" There is now in said Bank, eighty-six dollars and fortysix cents of specie. On the 9th of February, 1809, there
had been emitted by said Bank, six hundred and fortyeight thousand and forty-three dollars of their bills, according to their books. Owing to the extreme confusion in
which their mode of keeping their accounts has involved all
their transactions, it is impossible to ascertain with precision the amount of their bills now in circulation: but from
the inquiries and examinations made by the Committee, they
are of opinion that the bills of said Bank now in circulation, amount to the enormous sum of five hundred and
eighty thousand dollars."
J:I'rom the testimony of the Cashier, which is appended
to the report, it appears that the emission of six hundred
and forty-eight thousand eight hundred and forty-three doljars in Bank bills, spoken of by the Committee, took place
between the ~9th of March, 1808, and the 9th of Febuary,
1809, and that previou3 to the first mentioned date, the
Bank had bills in circulation to the amount of forty-five
thousand eight hundred and tweQty-one dollars.
'rhis history of the Farmers' Bank of Gloucester shows
what cunning men can do, when they have a legislative
charter to work with.
When the explosion took place, other New England
Banks exhibited proof that they had been trading on the
same principles, though none, we believe, to the same extent. In a speech in Congress, in February, 1811, Mr.
Desha. of Kentucky, said, 'S The Berkshire and North.
ampton Banks, both of l\lassachusetts, when their vaults
were examined, one had perhaps thirty or forty dollars in
it, the other, I believe, was entirely empty: the Coos Bank,
(I believe it was called,) of New Hampshire, was nearly in
the same situation, and thousands of their bills in circulation at the same time."
Mr. Bunvell, of Virginia, said, " The State of Massachusetts found, upon examining the vaults of the Banks, the
whole of them did not contain specie equal to the paper issued by a single one."
We have no list of the New England Banks that stopped
payment previous to the war: but it is evident from all testimony, that the Banking institutions in that quarter had
extended their operations so far, that the necessary reaction
produced very disastrous consequences.

BANKING FROM 1790 TO 1810-11.

51

South of New England,. the Banking system was, in some


respects, less pernicious than it has been at any period since
the war. The notes of the Banks were then "convertible" into either gold or silver. The old Bank of the United
States issu.ed no notes of a less denomination than ten dollar~: whereby it was enablE;d to exercise a more salutary
control over the local Banks, than the present Bank has
ever found possible.
As long as a state of war existed between Spain and
Great Britain, the citizens of this country were the carriers
and commercial agents of Spain, and nearly all the metal
lic treasure of Mexico passed through our hands. From
the Peace of Amiens, in 1801, this influx of silver abated:
but it was still considerable. It could hardly be regarded
as part of the' currency of the country, being received by
us in payment for European goods, and afterwards transmitted to those from whom we had obtained those goods;
yet, temporary deposits of it were made in the Banks, whereby these institutions were sometimes prevented from feeling the effects their expansions must otherwise have produced. The specie constantly in transitu from South America through the United States to other parts of the world,
was so great in amount, that a retention of the quarterly
or semi-quarterly supply for only a month or two was sufficient to relieve the Banks from the difficulties into which
they were occasionally brought by extending their operations too far.
The Bank of England having suspended specie payments
ill 1797, and paper money being in extensive use on the
continent of Europe, the demand for the precious metals
as a material for money was, in a degree, abated. This
rendered the pressure on the Ametiean Banks less severe
than it is at present.*'
'lI rrhe competition among the Banks being less than it is now, these
institutions made very high dividends. In 1792, the Bank of North
America divided 15 per cent. j in ]793, 13~ per cent.; from 1794 to
1799, inclusive, 12 per cent. per annum; from 1800 to 1802, 10 per
cent. j in 1803, 9~ per cent. j from 180<1 to 1810, 9 per cent. The dividends of the old Bank of the United States were from 7 5-8 per cent.
to 10 per cent. From 1792 to 1808, the Bank of Pennsylvania never
divided less than 8 per cent., and sometimes its annual dividends were
as high as 10 per cent. Dr. Bollman, writing in 1810, says, ' l none of
the Banks divided less than 8 per cent., and some of them much more."

52

BANKING FROM

1790 TO 1810-11.

High dividends were not the only profit those who


had the control of the Banks derived from their situation:.
Banking was a closer monopoly than it now is, and circumstances were such as to render that monopoly very lucrative. Money being at this period worth more than Bank
interest to mercantile men, facility of borrowing gave to
such as possessed it great advantages. OUT commerce was
exposed to frequent interruptions by the belligerents. These
sometimes made the necessity of borrowing very urgent,
which necessities the agents of the Bank directors used to
meet by lending money at two or three per cent. a month.
The Banks expanded and contracted their issues then,
as the Banks do now, and as credit Banks from the necessity of their nature always will do, and the occasional plenty of money produced by Banking operations, and the subsequent scarcity, had the same effects that they have in our
own times. As a close veil was then thrown over Banking proceedings, it was not always easy to trace these effects to their causes: but even in those days it was not possible completely to conceal the connection of causes and
consequences from the eyes of observers. The periodical
demand for specie for the China and East India trade always caused a pressure in the money market. The specie
at the Branch Bank at New York was, it is said, reduced
on one occasion to 10,000 dollars.*' Notwithstanding all
the advantages the Banks then enjoyed, they were probably
many times brought near the necessity of suspending s[lecie payments, for they had the same inducements then that
they have now for extending their operations as far as possible.
The effects of these operations were less severely felt, the
further a county or a town was removed from the sphere of
Bank influence. In many of the agricultural districts, the
state of credit was sound, or nearly so. The" vulgar prejudices of the country people in favor of gold and silver
money, were not then entirely subdued." The spirit of
wild speculation did not often infect them. Industry and
economy were considered as the true roads to wealth: and
men of reputation found little difficulty in borrowing as,
* Vide ., A Peep into the Bank," New York, 1828.

BANKING FROM 17'90 TO 1810-11.

53

much money as was wanted. 'rhe country capitalists did


not then purchase Bank stock with their surplus funds, but
lent them to their industrious neighbors for long periods.
Little risk attended this mode of lending, and it was mutually beneficial to the parties concerned.
" Before the establishment of Banks in the interior," say
a committee of the Senate of Pennsylvania,* H the farmer
who possessed credit and character, experienced little difficulty in borrowing on his simple bowl, tor one or more
years, any sum which it was thought could be prudently
loaned to him. Embarrassments and failures, in those
days, were scarcely known among our husbandmen, and
society moved on by a regular, sure, and happy march.
In our cities, on the contrary, ,vhere loans have been
chiefly made by incorporated Hanks, we have seen a continued succession of bankruptcies, and had it not been for
the practice 80 universally prevalent amongst merchants of
securing tile Banks for tlte sake of indorscrs, Banking long
since would have been abandoned as an unprofitable trade."
" From the adoption of the Federal Constitution in 1788,
down to l80tl," says a writer in the Richmond Enquirer,
" Banks were unknown in Virginia, with the exception of
a branch of the old U. S. Bank in Norfolk, about liD9 or
1800. The paper of this Bank scarcely found its way into
the interior of the country: and it may be truly said, the
curreacy of the country was metallic. Until the year 1798,
no people enjoyed more happiness or prosperity than the people of the United States-nor did any country ever flourish
more within the space of time. The desk of erery agriculturist in Virginia had some gold or silver to spare, if he
was a prudent, industrious man; or he had something like
money to spare in the hands of his merchant, who, in the
days of which I am speaking, acted as a banker to his
prospering customers. Nor was any interest paid upon
such moneys as might be deposited in the hands of the
merchant: because both planter and merchant considered
themselves accommodated by the arrangement: the planter
in having his money safely kept 1'or him, until he wanted
to use it, and the merchant in having the use of the rnon~y
* Report on the renewal of Bank charters, Jan. 15th, 1821.
Raguet, Chairman.

Condy

54

BANKING FROM

1790

TO

1810-11.

until it was called for. Under such circumstances, none


will dou.ht the happy condition of both planter and merchant, and if the view be somewhat extended, it will be
found that this state of prosperity was not confined to one
or two classes of society, but extended to all. The man
embarrassed might readily sell something, and to advantage, to pay his debts. 'l'he currency of the country being
specie, was widely scattered through the land, and in diversified hands, so that its concentration at any particular
point was impossible, and consequently its removal from
the country could not happen to any great extent.
"I know there are many, who, in order to effect present
objects, insist that commerce could not be carried on with
out the aid of Danks. To this I ans\ver, how was commerce carried on before we had Danks? Will any body
deny there was any commerce in this country at that time 1
None will be found hardy enough to take this ground, for
every intelligent man of forty years, knows that, before
there were any Banks in Virginia, the foreign commerce
of the country was greater than it has ever been since, and
the country far more prosperous. Nor was there the least
inconvenience in transmitting money from one point to another through the merchants, whose credit then, was as good
as the credit of the Banks now, if not bettel. Banks have
destroyed. the credit and confidence which men had in one
another.
" No people had more cause to rejoice than the people of
Virginia; but alas, the Banks came, and all things became
changed. Like the Up as tree, they have withered and destroyed the healthful condition of the country, and inflicted on the people political and pecuniary diseases of the
most deadly character."

BANKING FROl\'I

1810-11 TO 1811-13.

55

CHAPTER VII.

Of Banking from 1810-11 to 1814-1;').


After the unsuccessful attempt to obtain from Congress
a renewal of the charter of the United States Bank, overtures were made to the Lcgislature of Pennsylvania. The
petitioners offered a bonus of five hundred thousand dollars, and a loan of five hundred thousand dollars more, for
an act of incorporation lJlJder the title of the" Alnerican
Bank," \",ith a capital of five million dollars.* The offer
\vas, in a fiscal .point of view, vcry (iJ vantageol1s, but it was
not accepted, less perhaps from any remains of the old democratic enmity to the system, than from a desire of individ ual::; to get charters for the particular benefit of themselves and their friends.
" The anxiety displayed by the stockholders of the U nited Slates Ba.nk to continue their business," sa.y a committee of the Senate of Pennsylvania,t "and the successful
appearance of their dividends, added to the locating of
branches of the Pennsylvania Banks in the country, very
naturally excited the attention of the public, and particularly of the inhabitants of some of the interior counties of
the State who fancied that much of the prosperity of cities
was to be traced to the establishment of Banks, and that
if that were the case, there was no reason why the country
should not participate in their advantages.:t Such considerations as these, urged on by the desire of accumulating
wealth without the dull exercise of labor, engendered a spij

-If "Concise Observations on the


Propriety of Iucorporating New
Banks," Philadelphia, ltH2.
t Report on the Causes and Extent of the Present General Distress
Read January 20th, 1820. Coudy Ragnct, Chairman.
t If they had supposed that the prosp"erity of some of the inhabitants
of cities was owing to the estublishment of Banks, they would not have
been fill' wrong. Nor were they in error in supposing that Bank 110tes
are money to those who issue them, if others are so simple as to receive
them j nor that a universal rise in the pri~e Qf land aud commodities
brings an increase of wealth to those who are fortunate enough to make
sales while prices are high. Their error was in supposing that a system which IS profitable to any, ollly because but few participate in it,
might be extended so far as to be profitable to all who might wish to
shme in ita advantages.

56

BANKING FROM

1810-11

TO

1814-15.

rit of speculation. It was supposed that the mere establishment of Banks would of itself create capital, that a bare
promise to pay money, was money itself, and that a nominal rise of the price of land and commodities, ever attendant upon a plenty of money, was a real increase of substantial wealth. 'fhe theory was plausible, and too well
succeeded. The Farmers' Bank, with a capital of three
hundred thousand doUars, was established in the county
of Lancaster, in the beginning of the year 1810, and was
accompanied by several others in the city, as well as in
other parts of the State.
" These early symptoms of a mania for Banking, induced
the Legislature, on the 19th of March, 1810, to enact a
law prohibiting unincorporated institutions from issuing
Dotes, or pursuing any of the operations of Banks; but in
defiance of its provisions, the system was persevered in,
and even companies incorporated for the purpose of constructing bridges, departed frOlll the spirit of their charters,
converted themselves into Banks, and emitted notes for circulation.
"The war, as might naturally be expected, put a temporary stop to the exportation of specie, and thereby removed
the only check against inordinate issues of paper, which
can possibly exist. This cessation of the returning of notes
for payment, had the effect of inviting the Banks to enlarge
their issues. Loans were made to Government to an immense amount, and to individuals vastly beyond what the
absence of foreign commerce justified, and a gradual depreciation of tile currency was the result. 'I'he increase
of dividends and the facility with which they appeared to
be made, extended throughout the whole Commonwealth
t~e spirit of speculation, already introduced into some counties. The apparent success of the Farmers' Bank of Lancaster, which from the enormous extent of its issues was
enabled to divide upwards of twelve per cent. per annum,
and to accommodate its stockholders witlt loans to double
tlte amount of tlteir stock, had a powerful influence on the
public mind. A Bank by many was no longer regarded as
an instrument by which the surplus wealth of capitalists
could be conveniently loaned to their industrious fellow-citizens, but as a mint in which money could be coined at pleasure, for those who did not possess it before. Under these

BANKING FROM

1810-11 TO 1814-15.

57

delusive impressions, associations of individuals sprang up


in every quarter, holding out inducements to the farmer,
the m.erchant, the manufacturer, and mechanic, to abandon the dull pursuits of a laborious life, for the golden
dreams of un artificial fortnne.
"The liability, however, to individual ruin, attendant
upon unchartered copartnershIps, restrained in a degree
the Banking mania, and impelled the projectors to apply
for a legislative sanction. During the session of 1812-13,
a bill to incorporate twenty-five institutions, the capitals of
which amounted to nine million five hundred and twentyfive thousand dollars, was passed by both houses of the
Legislature, by a bare majority of one vote in each. The
bill wast returned by the Governor with his objections,
which were sensible and cogent, and on a reconsideration
the votes were 38 to 40. At the following session the subject was renewed with increased ardor, and a bill authorizing the incorporation of forty-one Banking institutions with
capitals amounting to seventeen million dollars, was passed
by a large majority. This bill was also returned by the Governor with additional objectiens, but two-thirds of each
House, (many members of which were pledged to their constituents to that effect,) agreeing on its passage, it became
a law on the 21st of l\Iarch, 1814, and thus was inflicted
upon the Commonwealth an evil of a more disastrous nature than has ever been experienced by its citizens. Under this law thirty-seven Banks, four of which were established in Philade]phia~ actually went into operation.
" The immediate commencement of a number of these
Banks, with scarcely a bonafide capital equal to the first
instalment, for tlte convenient mode of discounting stock
notes to meet the subsequent payments, was soon discovered,
increased the mass of paper credits already too redundant,
and depreciated the whole circulating medium so far below
specie value, as to excite a want of confidence in its convertibility. In the absence of a foreign demand for specie
a domestic one arose. The laws of the New England
States had been so rigorous upon the subject of Banks,
which were liable to a penalty of 12 per cent. per annum
for the non.. payment of their notes, that no depreciation of
their currency took place. The consequence thereof was,
that the difference between the New England prices of

58

BANKING FROM 1810-11 TO 1814-15.

commodities, stocks and foreign bills of exchange, and


those of Pennsylvania, was equal to the extent of the depreciation of the currency of the latter, and as our Bank
notes were redeemable on demand, the most profitable remittance which could be made to New England, in exchange for her commodities, was specie, and this demand
cre.ateu a run upon the Banks which they were not able to
withstand. The situation of the southern and western
Banks was precisely similar to that of our own. All had
over issued, and a general depreciation had ensued. The
same causes produced the same effects, and a general stop"
page of all the Banks in the United States except those of
New England, took place in August and September 1814.*
The New England demand, it is true, was increased by
two causes, viz: first, by facilities in foreign trade through
neutral vessels, which were afforded them by an exemption
from the blockade of the enemy, and secondly, Ly a wellgrounded apprehension that the southern Banks, from their
extensive emissions, would necessarily become embarrass..
ed. Certain it is, however, that all these causes cpmbined
could not have produced a general suspension of payment,
had our Banks observed the same caution in their issues as
that which characterized the Banks of the Eastern States."
From this account it appears, that, one year before the
expiration of the charter of the United States Bank, and
two vears before the commencement of the war with Great
Brit~in, the Bank n1ania raged in Pennsylvania with so
much violence as to require legislative interposition. In
It year or two after, the mania infected the Legislature.
It
had received a check in New England, and was now, according to the natural course of things, spreading south
and west.
The infatuation of the high authorities of the United
States Government, was as strong as that of the people
and of the local Legislatures. War was declared against
* It appears from other documents, that, when the British made an
inroad into the State of l\'Iaine, some of the Banks in that quarter of the
cOllntry suspended payment; that the Banks of Ohio and Kentueky
maintained specie payments till the latter part of December, or the beginning of January; and that the Bank of Nashville, (one of the two
Banks then in operation in Tennessee,) dld not stop payment till
August, 1815. The Banks of Louisiana suspended payment in ApriJ f
1814, foul' months sooner than the BalJks of Pennsylvania.

BANKING FROM 1810-11 TO 1814-15.

59

Great Britain in June 1812, and Bank notes and Bank


credits were seized on to defray the expenses of fleets and
armies. "The Bank capital has been stated at seventyfive millions," said the Committee of Ways and Means of
1813-14, of which lVIr. Eppes was chairman. "On this
capital we may calculate with safety on a circulation in
notes and discounts of one hundred millions. From this
sum deduct 47,569,120, the maximum of what is deemed
nec~ssary for circulation, and the sum remaining, viz.
52,430,880, constitutes the ability of the monied capitalists
to loan. Of this sum we propose to borrow thirty millions."
In conformity with these principles, about six millions
were borrowed in 1812, from the Banks, and about fOUf
millions more from individuals, wpo had obtained from the
Banks the means of lending. These loans \vere obtained
at par. In the next year the Government borrowed about
twenty miJlions, for every hundred doJlars of which it is.sued a certificate of stock for 113 dollars. In the following year it borrowed about fifteen miliiolls, for twelve millions of which stock was issued 8t the rate of 125 ~Jollars
for 100 dollars paid in. Then, as 1\lr. Ingham said in
Congress, "it seemed impossible to borrow on any terms."
'The policy of carrying on the war by means of loans,
cannot be said to have been :an unw~se one; but what
ought to have been an essential poiut in this policy, namely, dra\ving on the real resources of the country to an extent sufficient to support the credit of Government, was
neglected. It was known Lefore-hand, that the operations
of the enemy \vould, by cutting up our commerce, diminish the revenue from the customs: yet, the first steps towards raising a revenue by internal taxation, were not taken
till July and August, 1813: and the acts which were then
passed, did not take effect until the 1st of January 1814.
The consequence was, that the revenue for the three
years, 1812, 1813, and 1814, amounted to only thirty-six
millions, or about twelve millions a year. The charges on
Gover~ment in time of peace, amounted to eight millions
a year, and with the remaining four millions we were endeavoring to carryon a war with the most powerful nation
on the globe!
As an auxiliary means of supplying financial wants,
emissions were made of treasury notes, bearing an interetst

60

BANKING FROM 1810-11 TO

1814-15.

of five and two-fifths per cent. per annum, reimbursable


one year after they were issued, and receivable in payment
for duties, taxes, and public lands. Of these notes, nearly
three millions were issued in 1812, about six millions in
1813, and upwards of eight millions in 1~14. As great
part of the revenue of twelve millions a year was received
in treasury notes, the reader can judge of the condition. of
Government.
The mania which raged among the people, and which
infected the Legislatures of the different States, would have
produced great evils if we had remained at peace. But
this fiananciering of the United States Government h'lstened the crisis and exacerbated all the symptons of the disease. The country was flooded with paper, which might,
without impropriety, be regarded as a new emission of continental money, differing from the old only in having the
Banks for indorsers. Gladly did these institutions avail
themselves of the excuse for stopping payments, which was
afforded by the inroad of the enemy iute I\l~ryJand.
For some time after the suspension of spec.ie payments
by the Bank of England, its notes remained on a par with
specie, and after they depreciated the paper of all the other
Banks, inasmuch as they were convertible into Bank of
England notes, experienced an equal degree of depreciat.ion. The currency was at times depreciated as much as
twenty per cent., but the scale of depreciation was the
same throughout England and 'Vales.
The "uspension of specie payments in the United States,
differed from that of England in two important particulars.
It did not take place throughout the country, and, as ~ach
Bank was independent, there was a different scale of depreciation for each county and each town.
The paper, however, still served as a medium of commerce.
The merchant of Pittsburg put an additional
price on his goods, equivalent to the depreciation of the
currency in that quarter: and as he had obtained ten or
twenty per cent. more on his sales, he was enabled to pay
ten or twenty per cent. more on his purchases. A loss was
sustained by individuals when the paper underwent an additional depreciation whiJ.e remaining in their hands, but
their indignation, instead of falling on the Banks, was vented on the innocent and useful exchange merchants.

BANKING FROM

1810-11 TO 1814-15.

61

On the 19th of November, or eighty days after the suspension of specie payments, the paper of the best Banks of
Philadelphia was at fourteen per cent. discount: yet but
little murmuring was heard, except at the refusal of the
Banks to receive southern and western paper on deposit.
Prices were rising, business was brisk, and if any man
experienced difficulties, he attfibllted them to the war.
Such was the state of things, when, on the 14th of
October, 1814, or jorty-four days after the suspension
of specie payments, 1\11'. A. J. Dallas, Secretary of the
Treasury, recommended the establishment of a National
Bank, with a capital of fifty millions, of which twenty
miliions should be sLlbscribed by Government, and paid
in six per cent. stock. 'rhe rer.;idue of the capital was to
be subscribed by individuals, and was to be paid, six millions in gold and silver coin, in three different instalments,
six millions in treasury notes, and eighteen millions in six
per cent. stock. The Bank was to be bound to lend thirty
millions to Government, and was to be authorized to suspend speeie payments, if the President of the United States
should deem such a suspension advisable.
So desperate was the state of credit, that this desperate expedient was regarded with favor by many members of Congress. 1\lr. Ingham, who was one of its advocates, said,
" should any unexpected difficulties menace the Bank, there
will be a resort to the power of suspending specie payments.
* * * I do not apprehend any serious consequences will result from the temporary suspension of specie payments. The
experiment was tried many years ago in England, and has
been continued up to this time, without injury to the commercial interests, and with essential benefit to the nation
at large. It has also been tried here, and, though Bank
paper is somewhat depreciated thereby, it is solely because it will Hot answer tbe purpose of paying balances
between people of different States, for which specie h~d
usually been employed. For example, the Bank paper of
the District will not enable you to trade east of Baltimore:
yet every article to be purchased with it here, is as cheap
as it was twelve months ago. It may, therefore, be fairly
inferred, that a paper which was receivable all over the
United States in taxes, and might be exchanged for notes
of smaller or greater denomination, or treasury notes in
each of the States, would, from its general convenience

62

BANKING FROM

1810-11 TO 1814-15.

continue to circulate without depreciation, even though


a temporary suspension of spocie payments should take
place."*
JUr. Gaston, of North Carolina, compared this proposi.
tion to relieve the evil arising from too much paper by
throwing more into circulation, to the remedy which Burke
had described the French "Convention as prescribing for
every evil, viz: issuing more a:;signats.
'rhe clauses in the bill to authorize the Bank to sllspend
specie payments: and to compel it to lend thirty miJIions to
Government were struck cut: and the hill was further mo
dified, by a provision that tlw whole of the stock should
be subscribed by individuals, and paid, with the exception
of the six millions in specie, in treasury notes to be hereafter issued. In this form it received the approbation of a
large majority of the IIouse: but a select committee t.o
whom it was referred, in onc of its stages, received a let
ter from the Secretary of the Treasury, stating that the
bill as amended would not answer the purposes of Government. It would, he said, give to the holders of the public
stock cause for compiaint ; and it would be very difficult,
if not impracticable, to get into circulation, either with or
without depreciation, the forty-four millions of treasury
notes, which were afterwards to be subscribed as the capi.
tal of the Bank. After being made acquainted with the
views of t.he Cabinet, the I-Iouse rejected the bill, by a vote
of 49 to 101.
A bill drawn up in accordance wit.h the views of the
Treasury Department, was then brought before the Senate.
Jt proposed the establishment of a Bank, with a capital of
fifty millions, whereof five millions were to be paid in gold
and silver, twenty-seven millions in six per cent. stock,
eight millions in treasury notes, and ten millions to be sub
scribed by Government. The Bank was to be bound to
lend thirty millions to Government, and was to be author.
ized to suspend specie payments. In this form, the bill
passed the Senate on the 9t,h of December, by a vote of
17 to 14.
In the House it was opposed with great ability by Mr.
Webster and others, and rejected on the 2d of January,
1815, by the casting vote of ~lr. Cheves, the Speaker.
-If

Legislative History of the United States Bank.

BANKING FROM

1810-11 TO 1814-15.

63

The next day this vote was reconsidered, and the bill
was recommitted to a select committee, who, on the 6th of
January, reported it "ith sundry amend ments, reducing
the capital of the Bank to thirty millions, of which fifteen
were to consist of treasury notes, and ten of public stocks;
and striking out the clauses to compel the Bank to lend
thirty millions to Government, and to authorize it to suspend specie payments. The bill thus amended, was passed
by the House on the "; tIl of Jan uary, by a vote of 120
to 37.
'Vhen the bill was in this form returneu to the Senate~
that body increased the capital of the Bank to thirty-five
millions, and restored Ihe clause authorizing the Bank to
suspend specie paymclJts. In this, the lIouse refused to
concur, and the Senate finally receded from its amendments.
The bill having thus passed both IIouses, was sent to
President l\Iaclison, but he put his veto on it. IIis object~ons were: "The amount of stock to be subscribed will
not, it is believed, be suflicient to produce in favor of the
public credit, any considerable or lasting elevation of the
market price. Nor will allY adequate advantage arise to
the public credit from the sllbEcriptioIl of treasury notes.
The actual issues of these notes Ilearl}' equal, and will soon
exceed, the amount to be su Lscri bed to the Bank. The
Bank will be free from all obligations to co-operate with
public measures." [The meaning of this is, the Bank will
not be compelled to lend thirty millions to Government.]
Lastly: "The proposed Bank will commence and conduct
its operations under an obligatirm to pay its notes in specie,
or be subject to the loss of its ch~rter. 'Vithout such an
obligation, the notes of the Bank, though not exchangeable
for specie, yet resting on good pledges, and performing the
uses of specie in the payment of taxes and other public
transactions, would, as experience has ascertained, qualify
the Bank to supply at once a circulating medium, and
peeuniary aid to Goverament. Under the fetters imposed
by the bill, it is manifest that during the actual state of
things, and probably during the war, the period particularly requiring such a medium and such a source for loans
and advances to Government, notes for which the Bank
would be compellable to give specie in exchange, could
not be kept in circulation."

64

BANKING FROM

1814-15 TO 1815-16.

Another bill was then got up in the Senate to establish


a Bank with a capital of fifty millions, of which five were
to be paid in gold and silver coin, fifteen in six per cent.
stock, twenty in treasury notes, and ten to be subscribed
by Government. In one paragraph, it was declared "the
said corporation shall be bound to lend to the Government
of the United States, reimburseable at their pleasure, thirty
millions of dollars, in such sums and at such periods as
may be convenient to the Government of the United
States." And in another paragraph, it was expressly provided, that " until the first l\Ionday in April, 18H3, it shall
not be obligatory on said corporation to pay its notes in
specie." Authority was also given to Congress to authorize, in certain contingencies, "the suspension of specie
payments, for such time or times as they may deem
proper."
'fhis bill, which was framed in accordance with the
views of .l\1r. IHadison and of his Cabinet, was passed by
the Senate on the 13th of February, by a vote of 18 to 16.
It was then sent to the IIouse, where, after some debate,
it was, on the 17th of February, indefinitely postponed, by
a vote of 74 to 73.*
The news of peace was received on the 13th of February, and to the timely arrival of this intelligence, we
must attribute the delivery of the country from the curse
of a natiollul paper currency. If lUre 1\Iadison and the
gentlemen of his Cabinet had been allowed to take their
own way, we should have had a National Bank with a
paper capital of fifty millions, issuing notes redeemable in

paper.

CHAPTER VIII.

Of Banking from 1814-15 to 1815-16.


" At the time of the suspension of our city Banks, a
public meeting of merchants and others was held, who
publicly sanctioned the measure, under a pledge given by
the Banks, that as soon as the war was terminated, specie
* Legislative History of U. S. Bank.

BANKING FROM:

1814-15 TO 1815-1G.

65

payments would be resumed. That this measure was intended, is evident, from the curtailment of 10aJls immediately consequent upon th{~ sllspension.*
" But, unhappily, the redemption of the pledge was not
demanded by the public at the stipulated time, and the
Banks, urged on bJ' cupidity, and losing sight of moral obligations in their lust for profit, launched out into an extent
of issues unexampled in the annals of folly. The fulfilling
of a promise to pay money, by tendering another promise
equally false, sanctioned by the public acquiescence, led to
the organization of addition.d Banks, under the act of
March, 1814, which had not till then been attempted to be
formed, and a scene of indiscretion in the loaning of Bank
credits was every where exhibited, which realized the anticipations of those who had foretold the ruinous effects of
the paper system. l\1oney lost its value. The notes of the
city Banks depreciated twenty per cent., and those of the
country Banks from twenty to fifty, and specie so entirely
disappeared from circulation, that even the fractional parts
of a dollar were substituted by small notes and tickets,
issued by Banks, corporations and individuals. The depreciation of money enhancing the prices of every species
of property and commodity, appeared like a real rise in
value, and led to all the consequences which are ever
attendant upon a gradual advance of prices. The false
delusions of artificial wealth increased the demand of the
far-mer for foreign productions, and led him to consume in
anticipation of his crops. The country trader, seduced by
a demand for more than his ordinary supply of merchandise, was tempted to the extension of his credit, and filled
his stores, at the most extravagant prices, with goods vastly
if This meeting was composed principally, if not exclusively, of owners of Bank stock, and of debtors to the Banks; and the great body of the
public, knowing httle of the nature of Banking operations, acquiesced
in the measure.
Peace was restored in leBs than six months after the Banks of the Mid ..
dIe States had suspended p1yment.
So confident were some of the public that these institntions would
then redeem the solemB pledge they had given, that" the chests and
secure places were unlocked, and hard money was a,gain in the market, at three or four per cent. above par." Even in .May the discount
on Philadelphia notes was only;) per cent.; but the Banks, nnder one
pretext or another, refused to open their vomits, and the papel' sunk, by
June, to 9, and by November,. to IG per cent. below par.
.

66

BANKING FROM

1814-15 TO 1815-16.

beyond what the actual resources of his customers could


pay for, whilst the importing merchant, having no guide
to ascertain the real wants of the community but the eager..
ness of retailers to purchase his commodities, sent orders
abroad for a supply of manufactures wholly disproportioned
to the effective demand of the country. Individuals of every
profession were tempted to embark in speculation, and the
whole community was literally plunged in debt. The
plenty of money, as it was called, was so profuse, that the
managers of the Banks were fearful they could not find a
demand for all they could fabricate, and it was no unfrequent occurrence to hear solicitations urged to individuals
to become borrowers, under promises as to indulgences
the most tempting. Such continued to be the state of
things until towards the clos'e of the year 1815."
The Secretary of the Treasury negotiated with the
Banks as independent sovereignties. His first effort was
"to associate them with a view of furnishing a uniform
national currency."* It is almost needless to say that this
effort did not succeed.
Ilis next attempt was, " by their agency in circulating
treasury notes, to overcome the inequalities of exchange."
This, he says, was but" partially successful."
He then proposed a plan, "with the design to curtail
the issues of Bank notes, to fix the public confidence, and
to give each Bank a legitimate share in the circulation."
'Vhat the particulars of this plan were, he has not stated,
but it is evident from the context that it was through the
free-will of the Banks he sought to carry it into execution.
He SOOI1 found that a plan which was not fitted to promote
their particular interests, was "not likely to receive their
general sanction. The truth is," he adds, "the charter
restrictions of some of the Banks, the mutual relation and
dependence of the Banks of the same State, and even of the
Banks of the different States, and the duty which the directors of each Bank conceive they owe to their immediat~
constituents upon points of security or emolument, interpose an insuperable obstacle to any voluntary arrangement,
upon national considerations alone, for the establishment
'JIlo Proposition relating to the Natioual Circulating Medium, Decem
ber 6th, 1815.

BANKING FROM

1814-15 TO 1815-16.

67

of a national medium, through the agency of the State


Banks." The plain English of this is, that the directors
of the Banks esteemed it a " duty" to make as much profit
as they could, and Government did not see fit to interfere
with them in the discharge of this sacred" duty."
In the effort" to overcome the inequalities of exchange,
by the circulating of treasury notes, through the agency of
the Banks," Government did indeed make some exertion
of its power. The Secretary i::;sued an order, declaring
that, after the first of August, nothing should be received
in payment of duties but specie, treasury bills and the notes
of such Banks as would receive treasury bills in deposit at
par. "'.rhe effect of this plan," says a contemporary
writer,* " was clearly foreseen by all who fairly understood
the subject. What was the result 1 In places where treasury bills were in the market, at or above par, the Banks
agreed to receive them: whereas, where they were below
par, the proposition was rejected."
But this measure had not simply a negative effect. It
increased the mass of Bank paper in circulation, and thereby still further vitiated the currency. This is abundantly
proved in a pamphlet entitled" An Appeal to the Public,"
published at New York, in December, 1815.
In this pamphlet, 1\lr. Isaac Bronson, the author, states
the acti ve capital of the Banks of the city of N ew York to
be 13,515,000 dollars, and computes the amount on which
they were drawing interest to be twenty-two or twentythree millions. "Admitting it to be twenty-two millions,
it follows that the Banks make dividends on a sum which
exceeds their active capital about eight millions and a half,
yielding the stockholders about half a million in dividends.
This profit is derived from their mere credit, without any
cost or consideration whatever. Of the eight and a half
millions excess beyond their capitals, five millions have been
issued in the purchase of, and in exchange for, Government securities of various sorts, bearing interest.
" We have been speaking hitherto of ' the Banks,' as if no
distinctions were to be made between them. It is now time
to make the proper discrimination. Among each other the

'* Inquiry into the causes of the present state of the Circulating Medium. Philadelphia, August, 1815.

68

BANKING FROM 1814-15 TO 1815-16.

directors have already, in their conversation, fallen into the


familiar distinctions of the' debtor Banks,' and the' creditor' Banks. By the furmer, are meant those whose paper
has accumulated in the latter, to an amount which cannot
he taken up. The debtor Banks, the Banks who are indeuted to the others, have become so indebted, because
they hold large amounts of public securities, bearing interest, for which they have issued their Bank notes to
Government, and which notes have found their way into
the other Banks. To keep the creditor Banks quiet, however, and as much as possible in good humor, it has been
stipulated that they shall charge interest on these accumu.lations. 'l"'lhe practical effect therefore is, that the debtor
Banks make their profit by trusting Government; and the
creditor Banks make theirs by trusting the debtor Banks.
The debtor Banks give out their notes in exchange for
treasury notes bearing interest; and the creditor Banks
charge interest on the notes they receive of the debtor
Banks. But if these notes accumulate in the hands of individuals, no interest is allowed them, unless they compel
its payment by law. And thus the Banks have established
a rule of justice towards each other, in itself very correct,
but which they refuse, however, to extend to the rest of
the community,.
" It is important to our subject that the reader should
clearly understand the course of the Banks in relation to
treasury notes. We hope, therefore, to be pardoned for
what to some may appear unnecessarily minute.
" Some months since, the Secretary of the Treasury proposed, to all the Banks in the United States, that they
should receive treasury notes when offered them, and give
their own notes in exchange for them: accompanying this
proposition at the same time by a threat, that the treasury
should not receive the paper of those Banks which did not
receive treasury notes! At a meeting of a select committee
of our Banks, appointed to con5ider these propositions, it
was resolved not to agree to them. Three of the Banks,
and of course they are the three WI10 have been called, because they have become, the debtor Banks, did afterwards,
however, by a private and separate arrangement, made by
agents sent to Philadelphia on purpose, agree to these propositions, without the consent or knowledge of the fire

BANKING FROM 1814-15 TO 1815 16.

69

other Banks; so that these Banks now receive treasury


notes from anyone who presents them;- and issue their bills
in exchange for them when required. And here, we submit to the reader, whether it does not necessarily and inevitably follow, that these Banks have parted with all power
of control over their issues? That department of the Bank
has been abandoned to the Secretary of the Treasury; for
it is very clear, that he may to-morrow, if he pleases, cause
these Banks to add twenty millions to that excess of paper,
which is the true cause of depreciation. That this excess
is continually increasing, is most notorious: to what extent,
is one of those Bank secrets which all their caution has
not prevented us from penetrating.
" Among others, this singular and ludicrous consequence
has followed: The United States take only the bills of
those Banks which cannot keep their accounts even with
the other Banks; and refuse to receive the bills of those
Banks which are immense creditors of the Banks whose
bills are recei ved.
'r And the practical result will be, that so long as the
notes of these Banks continue to be worth more than treasury notes, so long will treasury notes continue to be presented and Bank notes issued in exchaJlge for them. When
the Bank notes, from the quantity afloat, become degraded
below treas~ry notes, this practice will cease. But the
affairs of the Banks will be, by that time, utterly irretrievable, and they will follow the fate of all the Banks which
have been mere machines of Government.
"It appears from the reply to the Connecticut Banks,
that in July, the commercial loans had been reduced nearly
three millions below what their amount was when payments were suspended. But it is at the same time acknowledged, that the whole amount of loans had been increas-ed tl"ree per cent. on the capitals of the Banks: and this
before the system of receiving treasury notes was adopted.
The effect of that system, as we have been recently enabled
to ascertain, has been to produce in the creditor Banks an
accumulation of the notes of the debtor Banks of between
two and. three millions: although the balances, when payments were suspended, were less than three hundred thousand."
The plentifulness of " money," whether caused by the

10

BANKING FROM

1814-15 TO 1815-16.

Banks trafficking with the Government, or by discounts


to private persons, was very acceptable to the great mass
of the people. The Banks of Pennsylvania added ten
millions to the amount of their loans in the course of the
year, and the Banks of some of the other States were
equally liberal, if not more so.
Never before had the
country exhibited such an appearance of prosperity. The
unequal value of the Bank notes of different districts, was
productive of some inconvenience, but this was not sufficient to counterbalance the advantage of a general rise of
prices, and the briskness of nearly every kind of business.
" \'Ve cannot," says one writer, " see, with some honest
calculators, how the continuance of the present state of
things can affect the interests of the country. If specie
has been withdrawn fi'om circulation, it is because it has
been occupied abroad.in a more profitable employment
than it was engaged in at home. Its exportation has added
to the stock and wealth of the nation, by the purchase of
merchandise abroad, worth more than the specie itself.
To be sure, we are subject to some inconveniences in our
transactions at market, and in petty dealings; but as we
become accustomed to the use of paper money, the disadvantage will vanish. All large mercantile negotiations are
conducted as they have heretofore been, by Bank notes,
or checks upon Banks. As to the agios of exchange,
where balances are due, they must of necessity continue:
but before long they will be so completely understood, as
to occasion no embarrassment. 'rhe merchant who sells
his goods for foreign notes, will add to the price of his
goods the amount of the loss he sustains upon the notes,
and the purchaser will eventually discover, that the difference which he must pay for his goods, at a place where
his Bank notes are at a discount, and at a place where they
are at par, is at least equal to the agio on his notes. As
to the solidity of the Banks, the suspension of specie payments has produced no alteration. Although the Banks
do not pay specie for any of their notes, yet the time never
has been when they could pay specie for them all: for a
Bank that keeps on hand a sufficiency of specie to meet
all its debts, can never divide six per cent. interest. The
very principle upon which it is founded, requires that it
* Inquiry, &c., Philadelphia, August, 1815.

BANKING FROM

1814-15 TO 1815-16.

71

should trade beyond its capital. But the Banks have the
same means of discharging all their notes as they ever had,
viz: claims upon individuals who have borrowed their
money, and who are now as able to pay as ever they were,
if not in specie, in merchandise and property of equal
value."
In lUarch, 1816, JUr. Carey addressed a series of letters
to the directors of the Philadelphia Bank, some extracts
from which will elucidate the state of affairs, and the state
of feeling.
:II<
:II<
:I(:
*
" Blessed peace at length arrived.
About the middle of l\lay, 1815, the first vessel from
Great Britain entered the port of Philadelphia. She was
quickly followed by others. 'rhey were all full freighted
with the most costly productions and manufactures of that
country. The news was rapidly conveyed into the interior.
The country storekeepers thronged to the city in crowds.
Never, probably, were there so many here before at one
time. The number has been calculated, and I believe
correctly, at two thousand.
" They were all eager to purchase-apparentiy fearful
of not being able to procure adequate supplies-and each
providing himself as largely as if he were to have the monopoly of the trade of his neighborhood.
"Thus, although the importations were uncommonly
great, they were sold off rapidly. The advances on the
invoices were universally high. And some of the importers
nlade independent fortunes on single cargoes.
" This was the golden age of Philadelphia. Thp. rapid
circulation of property-the immensity of business doneand the profits made on that business, produced a degree
of prosperity which she had, perhaps, never before witnessed. Almost every man in every kind of business, was
employed advantageously for himself and for the community. And so high were the prices of imported articles
generally, that domestic manufactures appeared likely to
stand the shock of competition.
H Of the immense quantity of business done in this city
during the last year, some idea may be conceived from the
astonishing fact, that the real bona fide auction sales on
which duties were paid, amounted in about eight months

72

BANKING FROM

1814-15 TO 1815-16.

to near ten millions of dollars. As this kind of business


was principally carried on upon credit, it may readily be
conceived that it must have created an inordinate quantity
of promissory notes. During the first epoch, (the months
of~Iay, June, July and August,) which I have styled, and
I think justly, the golden age of Philadelphia, there were
few of these notes offered at the Banks which were not discounted. The Banks were in a most liberal mood. Few
men of fair character experienced refusals. Instances occurred of notes being discounted at the different Banks
for thirty, fort.y, fifty, sixty and seventy thousand dollars.
Cases of this kind were not, I believe, very numerous.
But enough of them did occur, to establish the fact of the
extreme liberality that prevailed on the subject of discounts.
" The Banks have been censured, and very severely, for
the extension of their discounts at this period. They have
been charged with taking advantage of the suspension of
specie payments, with over-trading and over-issuing of
notes.
" Superficial reasoners have carried these allegations to
a great extent-and have not scrupled to brand this conduct :IS fi'll'JUt~Icnt. These charges are highly unjust, except, perhaps, so far as respects those immoderate notes
above mentioned. These I do not undertake to defend."
Mr. Carey then attempts to refute the opinion of those
"superficial reasoners" who maintained that the Banks
had over-traded. "Never" in his opinion, " was a country in a more enviable state." The only cause of com..
plaint he had against the Banks, was, that in the month
of September they began to curtail mercantile accommodations, whereby, in the months of October and November,
there was a considerable fall in the price of British goods.
The necessity for this curtailment, l\'1r. Carey shows to
have arisen from the extensive dealings of the Banks in
Government securities, thereby confirming the statements
of Mr. Bronson. The published accounts show that seven
of the Banks of Philadelphia, having nominal capitals of
the amount of $7,700,000, had invested about $3,500,000
in Government stock.

BANKING FROM 1815-16 TO 1816-17.

73

CHAPTER IX.

Of Bankingfrom 1815-16 to 1816-17.


The bonafide revenue of Government for the year ending December 31st, 1815, was only fifteen million seven
hundred thousand dollars, and the charges on Government
ill the same period amounted to upwards of thirty-nine million dollars: but with so much skill did the high otlicers
of -State exert those powers of financial metamorphosis
which the funding and treasury note system gave them,
that there was, at the end of the year, a balance in the treasury of upwards of thirteen millions of dollars.
The grand secret by which this balance was produced,
was that of exchanging treasury notes, many of which bore
interest, for inconvertible Bank notes which bore no interest. The officers of the treasury seemed highly pleased
with the result of their operations: yet they found a difficulty in applying the balance where it was most wanted.
But little of the money with which the treasury overflowed
would pass current thirty miles from the seat of the Banks
th~t had issued it, and paying the discount was a clear loss
to Government or the creditors of Government. As was
observed in a former chapter, the disadvantages arising
from the various values of Bank notes, were not, in the
case of individuals, sufficient (0 counterbalance the advantage~ arising from the advancing price of real estate, and
the universal briskness of business. The time for general
suffering, through the necessary reaction of the system,
had not yet arrived.
The want of uniformity appears to have been the only
evil the officers of Government discovered in the state of
the currency. If the depreciation had been uniform, as it
was in England, there is no reason to believe they would
ha\'e complained.
In his message to Congress, on the 5th of December,
1815, President l\ladison said, "It is true, that the improved condition of the public revenue will not only afford
the means of maintaining the faith of the Government with
its creditors inviolate, and of prosecuting successfully the

74

BANKING FROM

1815-16 TO 1816-17.

Ineasures of the most liberal policy, but will also justify an


immediate alleviation of the burdens imposed by the necessities of the war. It is, however, essential to every modification of thp. finances, that the benefits of an uniform national currency should be restored to the community. The
absence of the precio'us metals will, it is believed, be a temporary evil: but, until they can be rendered again the general medium of exchange, it devolves on the wisdom of Congress to provide a substitute, which shall equally engage the
confidence, and aceommodate the wants, of the citizens
throughout the Union. If the operation of the State Banks
cannot produce tbi;:; result, the probable operation of a N ational Bank will merit consideration: and if neither of
these expedients be deemed effectual, it may become necessary to ascertain the terms upon which the notes of the
Government (no longer required as an instrument of credit,) sh~Il he issued, upon motives of general policy, as a
common medium of circulation."
The Secretary of the Treasury, in his report on the 7th
of December, entered at large upon the subject. "It is
not intended," he said, " upon this occasion, to condemn
generally the suspension of specie payments: for appearances indicated an approaching crisis, which would probably have imposed it as a measure of necessity, if it had not
been adopted as a measure of precaution. But the danger
which origi11ally induced, and perhaps justified, the conduct
of the Banks, has passed away, and the continuance of the
suspension of specie payments must be ascribed to a new
cause." The Secretary admitted the practicability of supplanting the paper currency by specie, and did not regard
it as a very difficult operation: '4 But is it," he asked" within the scope of a wise policy, to create additional demaods
for coin, and in that way to multiply the inducements to
retain and import the precious metals of which it is composed? :):) * :) Even, however, if it were practicable, it
has sometimes been questioned whether it would be politic,
again to employ gold and silver for the purposes of a national currency. It was long and universally supposed,
that, to maintain a paper medium without depreciation, the
certainty of being able to convert it into coin was indispensable: nor can tlte experiment which has given rise to
the contl ary doctrine be deemed complete or conclusive. But,
o

BANKING FROM

1815-16 TO 1816-17.

75

whatever may be the issue of that experiment elsewhere,


a differe.nce in the structure of the Governments in the
physical as well as the political situation of the country,
and in the various departments of ind ustry, seems to deprive it of any important influence as a precedent for the
imitation of the United States."
Lord Stanhope had laid it down as a principle, " that a
pound sterling being the abstract value, by which the computed value of any object of consumption is measured, that
value ought to be independent of the variable quantities of
gold and silver, the representative signs of which may be
found in circulation." In conformity to this doctrine by
which an abstract idea was made the standard of value,
the British Government had imposed a penalty on all who
should presume to pay more than twenty-one shillings in
Bank paper for a guinea: and so very profound and ing-el!iun~ a doctrine could not fail to make proselytes on this
side of the Atlantic.
It was the delusion of the day. A host of British ministerial writers had taken much pains to prove that Bank
of England paper was as good as gola, and even better:
and they had numerous copyists in America. Mr. DaBas,
in admitting that inconvertible paper was not, whatever
might be its abstract excellence, adapted to the situation of
o.ur country, was in advance of many of his cotemporanes.
After the Secretary had made his report, Dr. Bollman issued a pamphlet,* in which he declared: "The paper of
the Bank of England presenes a value, as steady p'erhaps
as'"an-y ftttainable, whilst the precious metals, like other commodities, fluctuate around this standard: and the system
now in f Jrce, after an experience of eighteen years, is found
so perfectly satisfactory, that the greater number of the
most zealous bllllionists', convinced of their former error,
begin to doubt whether the resumption of specie payments
would be at all expedient, should even no difficulty whatever stand in the way of this measure." The Doctor proposed the establishment of a National Bank, the notes of
which should be redeemable in United States six per cent.
stock. Ilis plan was to be completed by making the notes
* PIHn of an Improved System of the Money Concems of the Union.
Philadelphia, Jan. 16, H3l6.

76

BANKING FROM

1815-16 TO 1816-17.

of the State Banks payable, not in specie, but in the paper


of the National Bank.
Mr. Carey pronounced the plan of Dr. Bollman a " magnificent" one, and said it "would be a sove1'c1~gn remedy
for all the financial difficulties of the' country."*
Another of the literati of Phi!adelphia published some
essays in the National Intelligencer, in which he endeavored to refute, what he conceived to be, "the very fallacious
and mischievous doctrines which some of the federal orators in Congress had recen~ly uttered on the su~ject of a
paper currency in general. Such, for instance, as the following: 'That paper not convertible can never have the
quality of money. That the ability of a .Bank to redeem,
i. e. to pay specie, is the true criterion of excessive issues.
'fhat a paper currency is depreciated when it ceases to be
of equal value with gold and silver. That the suspension
of specie payments by the Bank of England in 1797, led
to a depreciation of its paper. "I'hat the rise of specie, and
a general increase ot' prices, are the certain indications of
depreciation,' &c.-" All which propositions," said our
American anti-bullionist, "derived from the re'port of the
English bullion committee, were most triumphantly refuted,
in the discus~ions to which that report gave birth, in and
out of Parliament, and are now in England considered as
absolutely exploded."
1\lr. Carey, and the author of the essays published under
the signature of "Anti-Bullionist," appear to have afterwards changed their views of the nature of inconvertible
paper: but Dr. Bollman was, if we may judge by his latest
publications, inflexible in error.
A new light was now, however, breaking on the people.
To borrow the language of the commiuee of the Senate of
Pennsylvania, "Towards the dose of the year 1815, the
doctrine so generally taught, and so generally received by
the great mass of the community, that the paper currency
was not depreciated, but that specie had risen in value, began to he abandoned. The intelligent part of the people
became convinced that, altho~gh the nominal prices of
property and commodities had been advanced, the substantial wealth of society had absolutely diminished."

* Letters to the Directors of the Banks, March 27th, 18J6.

BANKING FROM 1815-16 TO 1816-17.

77

In Congress there were few, if any, open advocates of


inconvertible currency.
On the eighth of January 1816, a bill was reported to
establish a Bank of the United States. The bill was, word
for word, nearly the sa.me as that which had been brought
before the House in 1814, excepting that it made the capital
thirty-five millions instead of fifty, contained no provision
to compel the Bank to lend to Government, and did not
directly sanction a suspension of specie payments.
On the 26th of February, the House proceeded to consider the bill in committee of the whole, and l\'Ir. Calhoun
addressed them at length in support of the measure.
" There had been," he said, "an extraordinary revolution in the currency of the country. By a sort of under
current, the power of Congress to regulate the money of
the country had caved in, and upon its ruin had sprung up
those institutions which now exercised the right of making
money in and for the United States: for gold and silver
are not the only money, but whatever is the medium of
purchase and sale, in which Bank paper alone was now
employed, and had therefore become the money of the
country. A change, great and wonderful, has taken place,
which divests you of your rights, and turns you back to
the condition of the RevolutIOnary War, in which every
State issued bills of credit, which were made a legal tender,
and were of various values. We have in lieu of gold and
silver, a paper medium, unequally but generally depreciated,
which affects the trade and industry of the nation: which
paralyzes the national arm: which sullies the faith both
public and private of the United States. According to estimation there were in circulation, within the United States,
two hundred millions of dollars of Bank notes, credits and
Bank paper, in one shape or other. Supposing thirty millions of these to be in possession of the Banks themselves,
there were, perhaps, one hundred and seventy nlillions actually in circulation, or on which they draw interest, while
there were not, according to estimation, in the vaults of
all the Banks, more than fifteen million in specie. The
Banks had undertook to make loans to Governlnent, not as
brokers, but as stockholders-a practice wholly inconsistent
with the system of specie payments. Of public stock the
Banks held 00., the thirtieth day of September last, about

78

BANKING FROM 1815--16 TO 1816-]7.

eighteen millions and a half, and a nearly equal amount of


treasury notes, besides stock for long loans made to the
State Governments, amounting altogether to within a small
amount of forty millions. If the Banks would regularly
and conselltaneously begin to dispose of their stock, to call
in their notes for the treasury notes they have, and moderately curtail their private discounts: if they would act in
concert i.n this manner, they might resume specie payments. A National Bank, paying ~pecie itself, would have
a tendency to make specie payments general, as well by its
influence as its example."
Mr. 'Vard, of Massachusetts, "acknov.rledged the correctness of the representation o( the existing evil, for which
he appeared to think the remedy was near at hand, and
more simple in its application than the establishment of a
National Bank, viz., by refusing to receive the notes of
those Banks which do not pay specie, in dues to Government. But for an alliance which he considered disgrRceful to the country, and unjust to individuals, between the
Secretary of the 'f'reasury and the Banks which refused to
pay specie, the evil never would have exi~tetl."
1"11'. Smith, of ~hlr}land, "thought that, as far as he had
information, the Banks had not issued more notes than,
from the amoent of their capital, they had a right to do."
He was friendly to the proposal to establish a National
Bank, but " he <.lid not think it would do any harm, if the
Bank were to commence its operations without specie, but
with an assurance in its charter, of payment of specie at a
particular day. Such an assurance would make the Bank'
notes equally good, in his eyes at least, as gold and silver."
'rhe National Intclligencer said that) " with these view~
Mr. S. concluded his zn'acticaZ ~peech."
Mr. Sergeant proposed to reduce the amount of the capital of the Bank, from thirty-five to twenty miIJions. "With
regard to the pre~ent time, he said, he should be glad to
know why the l-'reasury of the United States had not now.
the command of specie payments, and the rate of exchange
in its O\VI1 hands."
1\lr. Wa.rd thought that, "in the progressive 5tate of the
country, it was not very important whether the capital was
thirty-five or twenty rniJIions: the latter amount could be
used with nearly as much effect for any mi~chievous pur~

BANKING FROM

1815-16 TO 1816-17.

79

poses as the former-that sum would be quite sufficient to


influence the destinie~ of the nation."
rdr. Tucker, of Virginia, was of opinion, that a capital
of thirty-five millions would not be too large. "In New
York, as I have understood, it is contemplated to put into
activity an additional Bank capital of fourteen millions.

In the State which I have the honor to'represent, efforts


have lately been made to establish fifteen new Banks, with
a capital, I presume, of about seven millions. Do not these
things prove that there is a fair prospect of profit 1"
Mr. Webster said, " It was a mistaken idea that we
were about to reform the national currency. No nation
had a better currency than the United States-there was
no nation which had guarded its currency with more care;
for the framers of the Constitution, and those who enacted
the early statutes on this subject, were hard-money men;
they had felt, and therefore duly appreciated, the evils of a
paper medium; they therefore sedulously guarded the cur
rency of the United States from debasement. The legal
currency of the United States was gold and silver coin;
this was a subject in regard to which Congress had run
into no folly.
" As to the conduct of the Banks, he would not examine
whether the great advances they had made to the Government, during the war, were right or wrong in them, or
whether it was right or wrong in the Government to accept
them; but, since the peace, he contended, their conduct
had been wholly unjustifiable, as also had that of the Treasury ill relation to them. It had been supposed that the
Banks would have immediately sold out the stocks, with
which they had no business, and fulfilled their engagements; but public opinion had, in this respect, been disappointed. When this happened, the Government ought,
by the use of the means in its power, to have compelled
the Banks to return to their specie payments.
"The establishment of a National Bank not berng, in
his opinion, the proper remedy, he proceeded to examine
what was. The solvency of the Banks was not questioned;
there could be no doubt, he said, if the Banks would unite
in the object, they might in three weeks resume the payment of specie, and render the adoption of any measure by
this House wholly unnecessary. The Banks, he said,

80

BANKING FROM 1815-16 TO 1816-17.

were making extravagant profits out of the present state of


things, which ought to be curtailed. He referred, for illustration of this point, to the state of the Banks of Pennsylvania, as exhibited in the return to the Legislature of that
State, which, with a capital of 2,500,000 dollars, had done
,8 discount business of 4,133,00U at the same time that it
held 1,811,000 dollars of the United States' stock-so that,
without taking into account a mass of treasury notes, real
estate, &c., that Bank was receiving interest on six and
a half millions, nearly three times the amount of its capital.
That Bank had been pronounced by the Legislature to be
in "a flourishing state;" it was so to the stockholders in
the Bank, he doubted not.
" The Banks not emanating from Congress, what engine
were Congress to use for remedying the existing evil? Their
only legitimate power, he said, was to interdict the paper of
such Banks as do not pay specie, from being received at
the Custom Houses. With a receipt of forty millions a.
year, if the Government was faithful to itself and to the interests of the people, they could control the evil, and it was
their duty to make the effort. They should have made it
long ago, and they ought now to make it."
After some members who were friendly to the proposal
to establish a National Bank had spokenl\fr. Randolph expressed his fears " lest gentlemen had
got some of their ideas on this subject from the wretched
pamphlets, under which the BritIsh and American presses
had groaned, on the subject of a circulating medium. The
proposal to establish this great Bank, he described as a
crutch, and, as far as he understood it, it was a broken one:
it would tend, instead of remedying the evil, to aggravate
it. The evil of the times was a spirit engendered in this
Republic fatal to republican principles-fatal to republican virtue: a spirit to live by any means but those of
honest industry: a spirit of profusion; in other words,
the spirit of Cataline himself-alieni avidus sui profususa spirit of expediency, not only in public, but in private
life: the system of Diddler in the farce-living any way
and well; wearing an expensive coat, and drinking the
finest wines at any body's expense. ]f we wish to transmit
our institutions, unimpaired, to posterity, we must put

BANKING FROM

1815-16 TO 1816-17.

81

bounds to the spirit which seeks wealth by every path but


the plain and regular path of honest industry and honest
fame.
"It was unpleasant, he said, to put one's self in array
against a great leading interest in the community, be they
a knot of land-speculators, paper-jobbers, or what not: but,
every lnan you meet, in this IIouse or out of it, with SOIne
rare exceptions, which served only to prove the general
rule, was either a stockholder, president, cashier, clerk, or
doorkeeper, runner, engraver, paper-maker, or mechanic,
in some way or other to a Bank. The gentleman from
Pennsylvania, might dismiss his fears for the State Banks,
with their one hundred and seventy millions of paper on
eighty-two millions of capital. However great the evil of
their conduct might be, who was to bell the cat? who was
to take the bull by the horns? You might as well attack
Gibraltar with a pocket-pistol, as to attempt to punish
them. There were very few who dared to speak truth of
this mammoth: the Banks were so linked together with
the business of the world, that there were very few men
exempt from their influence. The true secret is, the Banks
are creditors as well as debtors; and if we were merely
creditors to them for the paper in our pockets, they would
soon, like Morris and Nicholson, go to jail (figurati\'ely
speaking) for having issued more paper than they were
able to pay when presented to them. A man has their
note for fifty dollars, perhaps, in his pocket, for which he
wants fifty Spanish milled dollars: and they have his note
for five thousand in their possession and laugh at his demand. We are tied hand and foot, and bound to conciliate this grand mammoth, which is set up to worship in
this Christian land: we are bound to propitiate it. 'rhus,
whilst our Government denounces hierarchy; will permit
no privileged order for conducting the service of the true
God; whilst it denounces nobility, &c., has a privileged
order of new men ~rown up, the pressure of whose foot he,
at this moment, felt on his neck. But, he said, a man
might as well go to Constantinople to preach Christianity,
as to get up here and preach against Banks."
The bill was read a third time on the 14th of MarchI
and passed the House by a vote of 80 to 71.

82

BANKING FROM

1815-16

TO

1816-17.

When it carne before the Senate, Mr. Mann, of N. H.,


moved so to amend it that the whole amount of specie to
be paid in at the time of subscription should be two million
eight hundred thousand dollars, jnstead of one million four
hundred thousand. "The United States' stock subscribable
and payable at the same time, to the amount of seven mil
lions, would be no more aid to the Bank in discounting,
with a view to redeeming its notes in Elpecie, than so many
Bank bills. 1'he amount ofone million four hundred thousand dollars in specie, divided among the different branches,
which he presumed would be immediately established,
would, he argued, be insufficient for any operation whatever. Let the Bank issue paper to produce any effect, and
the specie in its vaults would be instantly withdrawn from
them; twenty-five days would be sufficient for that purpose. It might be said the Banks would commence operations slowly and with caution; but any man acquainted
with the institution of Banks knows t!tat tlte sum first paid
in is nearly all that tlle stockholders elJer pay. The Bank
would continue in operation forever, without taking from
the stockholders any considerable sum more than the first
instalment: for, as far as the Bank discounted, the second
instalment would be paid into the Bank with the specie of
the first instalment, &c. This was a position so fully supported by all experience, that he presumed it would not be
denied."
Mr. King, of New York, supported this motion. "The
gentleman from New lIampshire had conclusively shown,
that one and a half millions was the greatest extent.to which,
as it now stood, the Bank could safely issue on a specie
system. Illustrating his view of the subject by a detailed
statement of the process, he said, that the first discounts of
the Bank being necessarily to those most pressed by the
State Banks, the proceeds of the discounts would immediately find their way to the State Banks. Under this view,
a million and a half would be a sum entirely too smalJ to
enter into a competition with the existing Banks."
Mr. Bibb, of Georgia, and -Mr. Barbour of Virginia, opposed the motion. In reply to some remarks by these gentlemen, Mr. Mann said, " he knew of no law of the United
States which authorized any officer of the Government to
receive any part of the spurious money, which the gentle-

BANKING FROM 1815-16 TO 1816-17.

83

man said was in circulation. The laws were already perfect on this subject. If the executive officers had received
other moneys in payment than those authorized by law, they
had acted without law, without right. The remedy now
proposed, was, IUr. M. thought, :5omething like Sangrado's
practice: more Bank paper of the same sort-more hot
water for the same evil."
Mr. l\lann's motion to amend was rejected.
Mr. Wells opposed the bill on constitutional grounds, and
because he did not believe it would have the effect intended. " This bill," he said; " came out of the hands of the
Administration ostensibly for the purpose of curtailing the
over issue of Bank paper: and yet it came prepared to inflict upon us the same evil, being itself nothing more than
simply a paper making machine; and constituting, in this
respect, a scheme of policy about as wise, in point of precaution, as the contrivance of one of Rabelais' heroes, who
hid hims8lf in the water for fear of the rain. The disease,
it is said, under which the people labor, is the Banking fever of the States; and this is to be cured by giving them
the Banking fever of the United States."
So little effect have the strongest arguments on men
whose minds are made up, that the bill was passed by the
Senate on the 3d of April, by a vote of 22 to 12: and
returned to the House for concurrence in certain amendments, not important enough to deserve E'pecial notice.
When the question on concurrence with the amendments
of the Senate was stated, l\'1r. Randolph declared himself
the holder of no stock whatever, except live stock, and.had
determined never to own any: but, if this bill passed, he
would not only be a stockholder to the utmost of his power,
but would advise every man, over whom he had any influence to do the same, because it was the creation of a
great privileged order of the most hateful kind to his feelings, and because he would rather be the master than the
slave. If he must have a master, let him be one with epaulettes-something that he could fear and respect, something
that he could look up to-but not a master with a quill behind his ear."
Mr. 'Vebster "animadverted on what he caIIed a compromise of principle, on a great moneyed institution, and
the desertion, not only of principles, but of friends, which
had characterized the proceedings of this bill."

84

BANKING FROM 1815-16 TO 1816-17.

A motion to postpone the bill indefinitely, was decided


in the negative on the 4th of April, by a vote of 67 to 91.
The amendments made by the Senate were concurred in
by the House; and on the 10th of April the bill was approved by James Madison, the President.
At the same session of Congress, a resolution was passed
declaring that, after the 20th of February, 1817, nothing
but gold and silver, treasury notes, and the notes of specie
paying Banks, ought to be received in payment of dues to
the United States.
An incident which occurred in the beginning of this year,
deserves mention, as an example of the power the Banks
had over the community. A Mr. Fisher, a gentleman of
Richmond, wished to enforce the payment of ten notes for
100 dollars each, which had been issued by a Bank bin
Virginia. It had been his wish to bring a suit against the
Bank in 1815, but he could not find any gentleman of the
bar at Richmond, who was wiJling to undertake the business. He at length succeeded in engaging a lawyer, and,
in January, 1816, regular ?roceedings were instituted: but
the President of the Bank refused to obey the summons.
The sheriff called to his aid a posse comitatus, and the
President was forcibly taken before the court. The Bank
still refusing to pay the amount of its notes, its doors were
closed by the sheriff. It then brought suit against Mr.
Fisher, laying its damages at 10,000 dollars, and also took
measures for instituting legal proceedings against the shariff! The doors of the Bank were surreptiously opened, and
the Bank continued its operations, thus gaining a new triumph over the laws.
The Banks of other parts of the country, evinced ali
equal indisposition to obey the laws of the land. Notwith.standing that the resolution of Congress designated the
20th of February, 1817, as the day after which the notes
of non-specie paying Banks ought not. to be received in
payment of dues to Government, " the principal Banks in
the Middle States explicitly stated" to the Treasury Deparl~
ment, in the month of August, " their determination not to
resume specie payments before the 1st of July, 1817."t
Mr. Dallas had, however, become weary of treating with
1f

Niles.

t Letter of Mr. Dallas, Nov. 29th, 1816.

BANKING FROM 1816-17 TO 1817-18.

85

the Banks as with independent sovereignties. He gave public notice, on the 12th of Septem ber, that the resolution of
Congress would be enforced. But the delegates of the
Banks of New York, Philadelphia, Baltimore, and the District of Columbia, assembled at New York -on the 16th of
September, bid him defian,ce, by resolutions which they
published, fixing on the 1st of July for the resumption of
specie payments.
The resolution of Congress was, however, of such a nature that it could not easily be evaded; and it was not a little strengthened, by an act of the Legislature of New York,
imposing. a penalty of twelve per cent. on any Bank within
that ~ommonwealth, which should not pay its notes on demand. An act of this kind had been brought before the
Legislature in April, 1815, but th~ fair promises of the
Banks, and the exertions of their agents, prevented its
being adopted in that year. Tired out by the subterfuges
of the moneyed corporatIOns, the Legislature at last adopted this salutary measure.

CHAPTER X.

Of Banking from 1816-17 to 1817-18.


During the year ending December 31st, 1816, the re
venue of the United States' Government amounted to the
enormous sum ()f forty-seven millions of dollars, or to
two millions more than the total of the national dobt on
the first of January, 1812. The appearance of increasing
riches, and the general rise of prices produced by the free
use of paper money, had caused a consumption of foreign
commodities, the effect of which was felt by Government
in the great increase of its revenue.
But, with all this income, our fiscal affairs were not
free from embarrassment. "The public treasury exhibited a phenomenon in finance. l\1any millions of surplu.c;
revenue, with as many different values as there were offi
ces of collection, constantly accumulating at those port~ of
entry where it was least valuable, and appiicable only where
it was collected, while the great mass of public debt and

86

BANKING FROM 1816-17 TO 1817-18.

expenditures was at those places where the public moneys


were least available: even the quarterly interest on the
public debt, due where the currency was most valuable,
could not be discharged but by the evidence of a new
debt, in the form of seven per cent. treasury notes. Thus
creating an invidious distinction as well between the debtors as the creditors of the public, in many cases exceeding
twenty per cent. on the amount of their respective claims.
The market value of the currency paid to the Government,
was made to fluctuate according to the arbitrary decisions
of Banks, and intrigues of brokers.
"In this situation, the State Banks which had been
employed as depositories of the public money, withheld
the indispensable facilities of exchange, for the payment
of the public creditors, and' finally refused to pay the balances due by them, but in the onJinary course of public
expenditure; at their re~pective places of location claiming, under various groundless pretexts, the indulgence of
Government, while the immense sums received by them
on account of the United States in the paper of the Banks
which did not participate in the public deposits, enabled
them to control those Banks and protract their efforts to
resume specie payments."*
Such was the state of affairs, that, though there was a
balance of twenty-two millions in the treasury, the Government was compelled to borrow five huodred thousand dollars from the United States Bank, in anticipation of its
regular operations, to pay the interest due on the public
debt at Boston on the first of January, 1817.
The Bank of the United States opened its doors at Philadelphia on the 1st of January, 1817. Its capital then
consisted of one million four hundred thousand dollars in
specie, and fourteen millions in public stocks. About this
time a second instalment in specie, of the amount of two
millions eight hundred thousand dollars, was due: " but it is
clear," says a Friendly Monitor," that the Bank having
commenced operations, and put its paper in circuTation,
CQuld not enforce the payment of the specie part of the
second and third instalments of the capital in new acquisiH A Friendly Monitor."
Philadelphia, December, 1819. Rep.,
September,1822. Mr. Gallatin says" it is well hnown that this pamphlet
came from an authentic source." We have been told it was written
by W. Jones, the first President of the United States Bank.

BANKING FROM 1816-17 TO 1817-18.

87

tions of specie. They would be paid either in the note~


of the Bank, or in the specie which they would draw out
of the Bank, or with checks drawn on the credit of the
discounts, or not at all: for if the Bank had ceased to furnish facilities in the vain expectation of coercing paymen't J
no dividend could have accrued * * * * The directors therefore acted wisely in discounting the notes of the
stockholders payable in specie sixty dayf' after date."
From the documents laid before Congress in 1819, it appears that the di,rectors did not wait till the second instalment
was due: but passed a resolution in December, before any
notes of the Bank were in circulation, authorizing discounts
on a pledge of stock. Such" facilities" enablen the stocl<holders either to comply with, or to evade, the requisitions of
the law, as the reader is disposed to interpret its terms. A
large part of the second instalment was not paid till months
after it was due, and instead of t\\10 millions eight hundred
thousand dollars, only three hundred and twenty-four thou ..
sand can, according to the report of a committee of Congress, be f:'lirly presumed to have been paid in coin.
A third instalment, of two millions eight hundred thousand in coin, and of seven millions in Government stock,
was due after the 1st of July. But the committee of Congress say that, " of the two million eight hundred thousand
dollars which was to have been paid at the third instalment,
it is believed that a very trifling amount was paid in coin,
and as little of the funded debt, but that nearly the whole
were paid by the proceeds of notes discounted on stock."
To be brief, the capital of the United States Bank,
when all paid in, consisted of about two millions in specie,
instead of seven miIJions, and of about twenty-one millions
in funded debt, instead of twenty-eight millions, and of
about twelve millions in the stock notes of the original
stockholders. Mr. Mann had predicted that the stock
would be completed in this way, and it being the way in
which Bank stock is usually completed, the result ought
Lo occasion no surprise.
The manner in which the discounts on pledges of stock
of the Bank were conducted, was very beneficial to some of
the original shareho!ders. "The directors did not confine
themselves to the amount prescribed in the resolution of De-

'* Report to Congress, January, 1819.

88

BANKING FR01t'I 1816-17 TO 1817-18.

cember 27th, that is, to the proportion of the coined part of


the second instalment, but discounted to the full par value
of the stock which was paid for by the proceeds of the
same discounts; and the discounts, the payment of the
seconu instalment, the payment of the price to the owner,
the transfer, and the pledge of the stock, were, as it is
termed, simultaneous operations. All the discounts on
stock after the 20th of February, 1817, were made at the
par value of the shares, which enabled the discounter not
only to pay the whole of the instalments, including the
specie part, and the funded debt part, but also to draw out
of the Bank the amount which might have been paid in on
his shares. :II< :II< :II< The effect of these discounts was, very
obviously, to enable those who had made large purchases,
to retain their stock without paying for it, and to derive a
benefit from its probo.ble advancement in price. Had the
Bank rigidly required the payment of the instalments, the
large stockholders must have sold that portion of their
snares which their real means did not enable them to hold.
Or, if the Bank had not exacted the instalments, and had
not afforded the means of substituting credit for payment,
the stock would not have advanced materially in price, and
the large holders of it would ha ve had no ind ucementto retain
it. I n either event, a more equal diffusion of shares would
have beer. the consequence, and it would have reached the
hands of solid capitalists, who would have held only what
they could pay for."*
In August a resolutior.. was adopted to grant discounts
on ~nk stock, at the rate of 125 for 100 paid, with an
indorser for the excess. "And in order to insure the
greatest amount of such loans, and at the same time afford
facilities to the prompt purchase and sale of stock," the
President and Cashier were authorized, "to discount all
stock notes that should be offered between discount days,
to a certain amount. Stock-jobbing to an immense extent,
and wagers on the price of shares, were the inevitable consequences of this system. It gave equal facilities to the
bankrupt, who had not credit enough to obtain an indorser,
and to the capitalist. Stock could be, and was, purchased
without the advanc'e of a cent by the purchaser, who had
only to apply to the directors, or to the President and
,. Report to Congress, Jan. 1819.

BANKING FROM 1816-17 TO 1817-18.

89

Cashier between discount days, for a loan on the shares


about to be bought, and~ by what is termed a simultaneous
operation, he obtained the discount, and with it paid for
his stock. A rise in the market would enable him to sell his
shares, pocket the difference, and commence operations
anew. The loans actually made were most of them unreasonable, and excessive in their amount: they were not
made to the merchant and trader, but to a few persons
consisting of directors, brokers, and speculators: and have
been renewed and continued almost invariably at the option
of the borrower.
" One of the arts obviously intended to give the Bank
stock a high price in the European market, was the establishment of an agency there to pay the dividends. On
the 28th of November, 1816, a resolution was passed by
the casting vote of the President, and against the report of
a committee who had been appointed to consider the subject, authorizing John Sergeant, Esq., to make arrangements in Europe, for the payment of the Bank dividends at
the par of exchange, and at the risk and expense of the
Bank. When the committee find among the eleven who
voted in the affirmative, the names of some directors who
have heen constantly and largely engaged in the purchase
and sale of stock; and that of the ten who voted in the
negative, not one has been ascertained to have dealt in
those transactions, they are almost irresistibly impelled to
the conclusion, that the measure was adopted more with a
view to enhance the price of shares, than for the permanent
benefit of the institution.
" The root and source of all these instances of misconduct, was the illegal and reprehensible division of the
stock. By the first fundamental article of the charter, no
person, co-partnership, or body politic, shall be entitled to
more than thirty votes: and yet, in violation of this provision, it was a common and general practice, well known
to the judges of the election and to the directors, to divide
shares into small parcels, varying from one to twenty shares
to a name, held in the names of persons who had no interest in them, and to vote upon the shares thus held as
the attorneys of the pretended proprietors. By some of the
witnesses it is avowed that thpir object was to influence the
eJection. Mr. Leiper, one of the judges of the first elec-

90

BANKING FROM J816-17 TO 1817 18.

tion, states that he did so himsel'(' The effect was, that


Baltimore, which had about one-seventh of the shares
owned by individuals, gave more than one-fourth of all the
votes that could he given. In that place there were 1172
shares taken in 1172 names, by George Williams, as attorney, the whole of which, it appears from his examination,
he owned'. At Philadelphia nearly one-third of the shares
was owned, and the votes given at that place were about
two-ninths of the whole authorized. The same persons
who thus held the power of appointing directors, are found
to have the greatest loans on stock."
It is time now to turn our attention to other operations of
the Bank.
In January, a convention of delegates from the Banks
of New York, Philadelphia, Baltimore, Richmond, and
Norfolk, met in Philadelphia, and resolved to resume specie
payments on the 20th of February, on certain conditions,
one of which was, that the payment of the balances which
might accumulate against these Banks, shouid not be demanded by the Bank of the United States, until the said
Rank and oranches should have discounted for individuals
(other than those having duties to pay) 2,000,000 in New
York, 2,000,000 in Philadelphia, 1,500,000 in Baltimore,
and 500,000 in Virginia.
'rhe Bank of the United State3 acceded to this arrangement, and thus engaged to extend its credit dealings as
the other Banks contracted theirs.
A favorite object was "the equalization of exchange
between different parts of the Union." This was unfortunately sought to be effected, not by compelling the
local Banks to redeem their extra issues, and thus bring
the currency in every part of the country to a level with
specie; but by issuing notes payable at all the offices, and
by a sJstem of drawing and re-drawing carried on by the
mother Bank and its branches. The directors of the
branches at the South and West, especially those at Baltimore, had their own speculations to promote, and issued
.,. The effect of these different proceedinp;s was, that on the last of
December,1816, Bank of the United States stock was at 41 7-8, for 30
paid. in April at 81 for 65 paid, in May at 98, on the 20th of August at
144 for 100 paic', on the 30th of Angust at 156~, at which price it remained for 8Qme days, and then began to decline.
Report to Congress. Jan. 16th, 1819.

BANKING FROM

1816-17 TO 1817-18.

91

tlieir notes and drafts in so great quantity, as to cause no


little embarrassment to the Bank at Philadelphia, and the
branches to the North.
The Secretary of the Treasury increased the inducements of the Bank to multiply its discounts, by redeeming
with a portion of the public deposits, eleven millions of

the funded debt which formed part of the capital stock of


the Bank.
The effect of these Wlrious operations was, that the
discounts of the Bank, which were less than 3 millions on
the 27th of February, were increased to 20 millions by the
30th of April, to 25 millions by the 29th of July, and to
33 millions by the 31st of October. At the close of the
year, the amount of unsound credit dealings was, taking
the country throughout, greater than it was at the begining: for the" contraction" made by all the local Banks, did
not equal the "expansion" made by the United States' Bank.
The Committee of the Senate of Pennsylvania,* describe
it as only a nominal resumption of specie payments that was
effected in this year. "Had the United States Bank,"
they say, " been conducted with the discretion and wisdom
which were essential to so powerful a machine, its influence
might have been productive of the most happy consequences. The public was a ware that the currency of the
State Banks was still depreciated from excess, and that
nothing but a further reduction of their issues could remove its unsoundness; and yet, with this fact evident to
the most limited capacity, the directors of the new Bank
fancied, that if they could only persuade the city Banks
to call that a sound currency which was in reality an unsound one, the evil of depreciation would be cured; and
they accordingly proposed to them to enter into an arrangement to resume specie payment on the 21st of February
following. The city Banks, sensible that their power over
the community was so great that few individuals would
have the boldness to make large demands on them for
coin, and relying upon the forbearance that had hitherto
been extended to them by an injured public, who had been
for two years and a half paying them six per cent. per
annum for their dishonored bills, consented to the arrangement, and specie payments were nominally resumed on
'If

Report on the Public Distress, January 29th, 1820.

92

BANKING FROM 1816-17 TO 1817-18.

the appointed day. We say nominally, because, in point of


fact, a bona fide resumption did not take place, as> is evident from the well-known circumstance, that, for a long time
after that period, American as well as foreign coins would
command on the spot a price in city Bank notes above
their nominal value. Depreciation can as well result from
the forbearance of the public to demand their rights, as
from the refusal of the Banks to pay their engagements;
and the arrangement alluded to, was not any real resumption of cash payments, but a mere change of one species of
inconvertibility for another. No sooner, however, had the
directors of the National Bank succeeded in the desirable
object of rendering depreciated paper an e'quivaJent for their
own convertible notes, than, instead of reflecting, from an
acquaintance with general principles and from the experience of the past, that the channels of circulation could
contain only, without depreciation, but a limited amount
of paper credits, and that that amount was already in these
channels, they began to add to the mass already redundant, by emissions of their own notes: and in the course of
a few months, added to the mass of Bank loans an amount
greatly beyond the reductions which had been made. By
th~se means the currency, although nominally convertible,
was depreciated below its former low state, and was thrown
back instead of being ad vanced on the road to'restoration :
and ,thus was rendered nugatory, all the pain and embarrassment which the public had suffered from the former
curtailments of the State Banks."
In the Southern and Western States, the operations of
the Uoited States' Bank caused the local Banks to extend
their issues. The Bank, say the committee of Congress,
" improvidently afforded a temptation to the western Banks
particularly, to extend their circulation of notes, by insisting on its branches paying out their own notes in preference to those of the State Banks, and on their delivering
drafts on the eastern cities, whenever it could be done,
to prevent the remittance of their own notes. 'rhe branch
notes and the drafts issued in consequence of these instructions, were swept away by the facility of remittance
thus unwarily given, as well as by the ordinary balance of
trade. A vacuum in the circulation was thus produced,
which could be supplied only by the local notes J which were

:RANKING FROM

1817-18

TO

1818-19.

93

readily reeeived by the offices of the Bank of the United


States, and were retained by them as a fund upon which
interest was paid by the State Banks. The committee are
of opinion, that instead of conducting with the alleged
rigor towards the State Banks, the Bank of the United
States is liable to the more serious charge of having increased the amount of notes in circulation, by its acceptance of them in those places where it was known they
would not be redeemed in specie, and by maki ng them, in
the manner before mentioned, the only circulating medium
in that part of the country. So long as the notes of each
office were payable at all the others, and the office issuing
was not exclusively liable for their redemption, the discounts
at those places against which there w.as a balance of trade,
became larger in proportion to their indemnity against demands. As the not~s of the offices were rapidly carried
off, the payment of those discounts was necessarily made
in the notes of the local institutions. And us it was one
of the inevitable effects of the old system, to increase the
debts of the State Banks to the offices of the United States
Bank at those places."

to

CHAPTER XI.

Of Banking from 1817-18 to J 818-19.

In the first part of the next year, the Bank of the United
States conducted operations on the same principles that had
governed it in 1817. In January and February, 1818, the
amount of its discounts and exchange dealings was swelled
to forty-two millions, and in March and April to upwards
of forty-three millions.
During all tl~is time the Bank had not succeeded in getting notes to the amount of ten minion dollars in circulation, but this appears to have been owing not to any disinclination of the directors to issue paper in abundance, but
to a physical inability on the part of the President and
Cashier to sign as many notes as were wanted. To get over
this difficulty, application was made' to Congress to grant
authority to the President and Cashiers of the Branches to
sign notes. One of the objects in establishing the United

94

BANKING FROM 1817-18 TO 1818-19.

Stltes' Bank, was to substitute a uniform paper currency


for that variety of notes which made it difficult for many
persons to distinguish between the genuine and the counterfeit. An objection was therefore made to granting the
officers of the branches power to sign notes, as the variety
of signatures would increase one of the evils the Bank was
intended to remedy: but a bill was passed by the Senate
to authorize the appointment of a Vice President and Assistant Cashier, whose special duty it should be to sign
notes for the mother Bank and all its branches. When the
bill came before the House on the 18th of April, much
praise was bestowed on the Bank for the excellent manner
in which it had been conducted, and the propriety of taking
measures to enable it to circulate more paper was warmly
urged. Mr. Smith, of J\'1aryland, said, " one great object
of the Bank was to afford an adequate circulating medium,
that would be uniform throughout the Union. To effect
this, it is necessary to have a sufficient number of notes
signed to enable the Bank to put twenty millions of dollars in circulation. The President and Cashier cannot,
(having their other business to attend to,) sign more than
1500 notes each day. At that rate it would require more
than four years to sign the number and kind necessary for
circulation." The bill was negatived by the House, chiefly
from a fear, as would appear from the debates, that it would
give the United States' Bank too much power over the local
Banks.
In its charter, in the preference given to jts notes by the
Government, and in its being made the depository of the
public revenue, the United States' Bank had great power.
It was thus it was enabled to make discounts in little- more
than a year to an amount exceeding forty-three millions,
including eleven or twelve millions on pledges of stock,
though the specie part of its capital was hardly two millions.
To sustain its operations, the Bank exchanged part of its
funded debt fOf specie in Europe, and purchased a large
amount of coin in the West Indies and other places. Between July, 1817, and July, 1818, upwards of seven millions of specie were imported by the Bank, at a cost of five
hundred thousand dollars. But the original cause of the
ipecie's leaving the country, viz: the excess of paper issues,

BANKING FROM lti17-18 TO 1818-19.

95

stilI continuing to operate, the money was exported by in~


dividuals faster than it was importeu by the Bank. " I
myself have seen," says a Friendly Monitor," a detailed
statement of five millions dollars, exported in twelve months
from the ports of Boston and Salem alone, and from this
data the aggregate amount exported in twelve months from
the United States, could not have been, during the same
period, short of twelve million of dollars." This estimate
is probably below the real amount, and the result would
ha ve been the same, if the Bank had imported seventy
millions instead of seven millions. If we had mines as rich
as those of Potosi, and paper should be issued in excess, we
should not be able to retain in the country even that small
amount ofsilver which is necessary to keep Bank notes convertible.
Notwithstanding the importation of specie made by the
Bank, the amount at anyone time in its vaults did not rise
to three millions-an amount \'v'hich, divided among the
mother Bank and eighteen branches, was quite insufficient
to sustain its operations.
In July the Board of Directors found it absolutely necessary to change their policy. A sudden reduction of discounts to the amount of two millions at the Bank in Philadelphia, two millions at Baltimore, seven hundred thousand
at Richmond, and five hundred thousand in Norfolk, was
then ordered to be made before the 1st of November, and
it was resolved to require the payment of the balances due
by the Banks of Cincinnati and of the District of Columbia.
By the 30th of October, the reduction of discounts at
Philadelphia had exceeded the prescribed amount in the
sum of five hundred thousand dollars. In Baltimore, Richmond, and Norfolk, the deficiency was one million seventyseven thousand five hundred. The total reduction in the
four cities was nearly four million five hundred thousand:
yet an additional reduction to the amount of one million,
was deemed necessary in Philadelphia; and a committee of
investig-ation was constrained to urge a steady perseverenee in the curtailments of the discounts of the Bank and
its offices, wherever it might be practical and useful. One
of the reasons for this course of procedure, was" the premium paid at this time for specie, which is said to be ten
per cent. on Spanish dollars, and a considerable though
less premium for other coins."

96

BANKING FROM 1817-18 TO 1818-19.

" When, in July last," says the Committee of Congress,


"the Board directed a curtailment of discounts, it fell in
almost all cases on the business paper, while the immense
amounts loaned on stock pledges were but little affected, excepting at the offices at Richmond and "Vashington, where
the curtailment appears to have fallen equally 011 all the
notes. But the discounts at these places on stock were
very small, particularly when compared with Baltimore,
where the loans were such, and so long continued, as to receive the animadversions of the parent Board."
A reduction of discounts to the amount of four million
five hundred thousand dollars in four cities, in the short
space of three months and ten days, had a very disastrous
effect on the merchants, and through them, on the rest of
the community. Their sufferings were increased by the order not to receive on deposit at Philadelphia any notes except
those of the mother Bank, or at anyone of the branches,
any notes except those of that one branch. Heretofore the
mother Bank and its branches had paid and received indiscriminately, all their notes, without regard to the place
of issue. By the new arrangement, paper which was received from the Bank on one day was on the next no longer
available in paying debts to the Bank. In other words, the
merchants were called on to pay four or five millions, and
were not allowed the privilege of paying debts due to the
Bank itself in the paper of the Bank.
The local Banks, when a sudden demand was made on
them for balances due to the United States' Bank, had no
way of meeting those demands but by pressing on their own
customers. The pressure thus became general throughout
the country.
The Committee of Congress say, that ,he demands of
the United States' Bank against the local Banks, "were
suffered to accumulate improperly, instead of being gradually reduced as specie was required at other offices, and
in small quantities that would not have been felt. Their
reduction was not insisted upon sufficiently early; and
when the Bank began to call for specie, its demands were
so considerable as not only to expose the local Banks, but
the citizens in their vicinity, generally, to very severe
pressure."
The situation of the community was very alarming. Mr.

BANKING FROM

1817-18 TO 1818-19.

97

Niles, in his Register of October 3d, intimates that (( a


grand scheme was maturing 'for keeping the paper-mill
a going.' The first part of the scheme is to prepare the
members of Congress to vote as directed at the ensuing
session of Congress. Of what is designed to be done,
when a sufficient number of members are secured, we are
almost wholly in the dark at present: but we believe one of
the things- proposed is, the substitution of a paper currency
as a LEGAL TENDER, instead of coin, which is frequently
hinted at in certain newspapers, as if to feel the public
pulse." In his Register, of November 7th, he says, "We
have several times darkly hinted at a great intrigue which
was going on to relieve the Banking system, generally, and
especially to subserve the grand views of the Bank of the
United States. I am just now informed of what this intrigue is: but private honor will not permit me to mention
it, at present. The object is, by bits of paper to pl'event
the Banks from being compelled to pay their debts. This
is the long and the short of the whole affair. Aye, and the
pretence is most specious, the appearance most seducing:
but the, instantaneous effect will be to banish money, and
bring about those happy times when lordly Banks issued
notes for six and a quarter cents, and a copper coin was a
rarity. To effect this arrangement, many of the local
Banks will co-ope rate-to seal their own ruin; for the bits
of paper above alluded to, will immediately centre in the
Bank of the Unitecl States. Perhaps, as the people are alarmed on this subject, the project may not be pressed; though
we have reason to believe that much exertion has been
made to con vince certain mem bers of Congress of the propriety of it: and we were astonished to learn that a distinguished gentlemen, of whom, indeed, we expected a different conduct, h~d boldly predicted the triumph of the United
States' Bank over the local institutions. Upon my conscience, I would rather agree to have a hereditary President and a Senate for life, than that this thing should happen. In the latter case, our President and Senators might
be influenced to good actions by a sense of individual
shame, or a love of true glory, and the choice of representatives would be left free to us: but in the other, an unknown
and irresistible aristocracy would be raised up, secret as
the "council of ten" and remorseless as the "holy inqui-

98

BANKING FROM 1817-18 TO 1818-19.

sition." Gjve me to live under any despotism but that


which springs from the command of money: for it is the
most base and unprincipled of alL
" But Congress will not, cannot, dare not, pass the law,
proposed to pamper speculation. They may prohibit the
exportation of coin, if they please ;- still they cannot substitute a paper medium for it, and compel me to take it in
payment of debts justly due me. And this it is which is
fondly designed to be attempted-for the benefit of the
rag-barons.' ,
It is certain that letters were received at Washington
from Philadelphia, in the early part of December, urging
an emission of treasury notes; and that, on the 7th of December, a meeting was held in Philadelphia, Mr. Matthew
Carey in the chair, by which a committee was appointed
to draft a memorial to Congress to prohibit the exportation
of specie. Some of the members appointed on the committee declined acting, and no memorial appears to have
been prepared; but a member of the Senate actually
brought before that body a resolution to prohibit the exportion of the precious metals! What despotic Spain could
never accomplish, was attempted in free America.
Towards the close of this year, public opinion became so
adverse to the Banks as to call forth strong denunciations
of them from some of the high officers of State. De Witt
Clinton, the Governor of New York, in his J\:lessage to the
Legislature, reprobated the system in strong terms. " .. rhe
em barrassments," he said, "arising from the disordered
state of our currency, have increased instead ofdiminishing,
since I had the honor to address the Legislature on the
subject. And unless efficient preventives are adopted, and
suitable remedies applied, the evil will be in a state of progressive augmentation. A proposition to invest -Banks
with a power of coining money, would have no advocates,
and yet it might not be so pernicious as the authority
already granted of emitting Bank notes. Having uniformly
opposed the mUltiplication of Banks, I now only express
opinions formed for many years, after mature deliberation,
and which are every day sanctioned by the progress of
time and the voice of experience."
Governor Worthington, of Ohio, said, "The disordered
state of the currency will claim your attention. The good

BA.NKING FROM

1817-18 TO 1818-19.

99

people of the State look to you, gentlemen, for such remedy as may be within your power. The obstacles you have
to encounter in effecting an object of so much importance
cannot be disguised: indeed, 1 fear it may be found im-

practicable, under existing circumstances, to answer public


expectation."
Gabriel Slaughter, the Governor of Kentucky, was very
emphatic in his denunciation of the system. "I am indeed," he said, "ready to confess before my countrymen,
that my sentiments, or perhaps prejudices, ever have been,
and still are, strongly against the Banking system. Time
and experience, instead of conquering these prejUdices,
have tended to confirm them. I have ever viewed these
moneyed corporations with jealousy. [consider the corporate powers and privileges conferred on them, as so much
taken from the power of the people, and a contrivance to
rear up in the country a moneyed aristocracy. Money is
power, in whatever hands it is placed: but it is less dangerous when divided among individuals, than when combined and organized in the form of Banks. In vain did
the American people, during their struggles for liberty and
independence, destroy the landed aristocracy, then existing
under the law authorizing estates to be entailed, if a moneyed aristocracy is to be substituted. Instead of having
our National and State Legislatures filled with men representing the feelings and interests of the great agricultural
class of the community, I fear we shall see these Banking
aristocracies greatly preponderate on the legit;lative floor.
I must ever be opposed to any system of policy, which, independent of its pernicious and corrupting influence in
other respests, tends to diminish, if not destroy, the weight
and influence of the farming interest, upon whose virtue
and independence the duration of our free institutions so
essentially depends.
" While this system exists in other States, Kentucky can
do little to rescue the country from the evil and anti.republican tendencies of these moneyed corporations. Let us
therefore invit.e a co-operation in som-z plan, co-extensive with the Union, to redeem this young and rising Republic from the mischief and dangers of this paper system,
before it is too late. If permitted to progress and interweave itself with all the interests and concerns of society,

100

BANKING FROM 1817-18 TO 1818-.19.

it may, in a more advanced and dense state of our population, explode in a convulsion of the Government. The
disease, it is true, has taken deep root, but the American
Repu blic is young, and by a vigorous and determined
effort, may, in a few years, exterminate it. Some time
may be necessary to enable these institutions to wind up.
To effect so desirable an object, I would recommend to
the Legislature, to propose an amendment to the Federal
Constitution, providing, that, after a certain period, no incorporated Bank should exist in the United States, or, if
this should be thought going too far, und Banks in any
shape, or to any extent, are useful and necessary, let the
Banking powers be limited, and the system so regulated
and restricted, as to secure the community against the
wide spread ruin and mischief with which we are thre.atened."
These views appear to have been adopted by some members of the Legislature, for on the 4th of January, 1819,
Mr. Bledsoe submitted the following resolutions : 1. Reso!lJed, by the General Assembly of the Commonwealth of Kentucky, that the establishment ofa moneyed
monopoly is hostile to republican liberty.
2. Resoll'ed, That Banks are such a monopoly, and do
Dot depend for their profits upon the correct employment
of the products of industry.
3. Resolved, That as the products of the labor of a nation are the only genuine sources of national wealth, any
corporation or institution which tends to substitute speculation instead of the proper and valuable fruits of this
labor, must be pernicious, and ought to be abolished.
4. Resolved, 1:hat any corporation not promotive of, or
essential to, public good, ought not to exist.
5. Resolved, That all Banks wherein individuals are interested, are moneyed monopolies, tending to make profit to
those who do not labor, out of the means of those who do:
not tending to increase the means of industry, but to profit
of those means unjustly: tending to tax the many for the
benefit of the few: tendlllg to creale a privileged. order,
unuseful and pe~nicious to society: tending to destroyl
liberty, and create a power unfriendly to human happiness:
tending inevitaLly to an unfeeling m:meyed aristocracy, more
to be deprecaH'd than monarchy itself: tending to the destruction of th,~ best hopes of man here and hereafter.

BANKING FROM 1818-19 TO 1819-20.

101

6. Resolved, That it becomes the duty of the General


Government, and of every individual State composing it,
(gradually if necessary, but ultimately and certainly,) to
abolish all Banks and moneyed monopolies, and if a paper
medium is necessary, to substitute the impartial and disinterested medium of the credit of the nation or of the
States."
We know not if these resolutions were adopted.

CHAPTER XII.

Of Banking from 1818-19 to 1819-20.


A committee of Congress, which had been appointed on
the 30th of November, 1818, to investigate the affairs of the
United States' Bank, arrived in Philadelphia on the 6th of
December, and left it on the 26th. Some investigations
were subsequently made of the state of the branches at
Richmond and Washington; and on the 16th of January,
1819, the committee made a report, giving an account of
the operations of the Bank, and concluding with a declaration that it had vl0lated its charter, in four particulars, viz:
in purchasing two millions of pu blic ~ebt ; in not requiring
the stockholders to pay the second arid third instalments of
the stock in coin and funded debt; in paying dividends to
stockholders who had not completed their instalments; and
in suffering certain individuals, under pretext of their being
attorneys for others, to give more votes for directors than
the charter allowed.
Mr. Spencer, the chairman of the committee, offered a
resolution to cause a scire facias to be sued out, to call on
the corporation of the United States' Bank, to show cause
why its charter should not be forfeited, unless the Bank
would consent to certain alterations in the act of incorporation. Mr. Trimble offered a resolution to cause a scire
facias to be issued immediately. Mr. Johnson offered a
resolution to repeal the charter of the Bank.
After debate, Mr. Trimble's resolution was rejected on
the 24th of February, 39 members voting in its favor, and

102

BANKING FROM 1818-19 TO 18] 9-20.

116 against it. Mr. Johnson's resolution was supported by


30 members, and opposed by 121; and 1\lr. Spencer, discovering by these votes the disposition of the House, withdrew his resolution.
"'Ve learn," says 1\lr. Niles, "that about forty members are stockholders-some of them heavily so: we hope
that none of tlzem voted in their own case. 'fhe great danger of incorporations is, that the chief members of them are
our governors, judges, and legislators; and thus their individual interests may be placed between the people and
the justice that they claim."*
The Bank was in more danger from its own operations,
than from any proceedings of Congress. On the receipt
in Philadelphia of the report of the committee, the stock
fell to 93, and Mr. William Jones, the President, soon after
fled in affright from the institution. Mr. Cheves, of South
Carolina, was invited to take his place, and Mr. James C.
Fisher, of Philadelphia, served as President pro tempore.
Three years afterwards Mr. Cheves gave the stockholders an exposition of the state of the Bank, from which
exposition we shall make a copious extract.
" The institution comm~nced active Banking operations
about 1st of January, 1817, and in the course of the year established eighteen branches. The report of the committee of
Congress made in December, 1818, has made you so fully
acquainted with many of the details of the previous management, that I mean to do little more in relation to the
period which preceeded 1819, than present the results, as ,
they will be exhibited in the state of the Bank when I
came into it.
"The Bank immediately on its commencement did a
very extensive business, imported vast sums of specie,
paid its notes and those of the offices, without reference:
to the places where they were payable, at the Bank, and
all the principal offices north of the Potomac, while they
were, under the charter, necessarily received every where
in payments of debts to the Government of the United
State: and drafts were given without limit, on the parent
Bank and northern offices, by the western offices, at pal)
or at a premium merely nominal. As soon as the notes ot
it

Weekly Register, Feb. 27, 1819.

BANKING FROM 1818--19 TO 1819-20.

103

the southern and western offices were paid or recei"'ed


by the Bank and northern offices, they were returned
to them and re-issued in perpetual succession. An accompanying exhibit will show the enOrmous amount of the
notes of the southern and western offices, which became
chargeable on the Bank, directly and indirectly, through
the northern offices.* The result was, that the Bank and the
great northern offices were drained of their capital, and
on the 20th of July, 1818, only eighteen months after the
the institution began its operations, it was obliged to commence a rapid and heavy curtailment of the business of
the Bank and its offices. During all thi., time, it had the
advantage of immense Government deposits. At the moment that curtailments were ordered, the Government deposits in the Bank and its branches, including the deposits of public officers, amounted to eight millions of
dollars, and they had been larger at prececding periods.
Curtailments were ordered from time to time, at the southern and western offices, to the amount of seven millions of
dollars, and at the parent Bank to the amount of two millions, though at the latter they were made to the amount of
3,600,000, and upwards, between the 30th of July, 1818,
and the 1st of April, 1819. No curtailments were ordered
at the offices of New York and Boston, because there was
no room for them, yet necessity obliged them to reduce their
business very much. The curtailments at all points within
the above rnentioned dates, being eight months, were
6,530,] 59 dollars 49 cents. Yet after these immense and
rapid curtailments, the most sensible and vital points (Philadelphia, New York, and Boston) were infinitely in worse
condition than when the remedy was devised.
" An accompanying exhibit will show the distribution of
the capital at the close of this important period.t At that
moment the discount line of the important office at Boston,
was only 94,584 dollars 37 cents.
And when in this
if The total was $14,893,661, or $20,422642,95, if we include
5,528,981,96 of post notes which were issued ~y the parent Bank, anr!
destroyed because they were used in the Southern and \Vestern States,
in lieu of Bank notes.

t The office at New York had a capital of 245,000 dollars: that at


Richmond, 1,760,502, Baltimore, 5,().16,000, Cincinnati, 2,400,000,
Louisville, 1,129,000, Lexington, 1,500,000, &c.

104

BANKING FROM 1818-19 TO 1818-20.

wretched state, the southern and western circulation was


pouring in upon these weak points, and the Government at liberty, according to the practice of the time, to
draw on either office or the Bank for the gross amount of
its deposits, throughout the whole establishment, whether
North, South, East or West. 'rhe southern and western
offices were not restrained from issuing their notes, which
they did most profusely. The curtailments, in many instances, resulted merely in "l change of debts bearing interest, for debts due by local Banks, or the notes of local
Banks, on neither of which was interest received. The
western offices curtailed their discounted paper, but they
purchased what were called race horse bills, to a greater
amount than their curtailments. The Bank itself continued,
during the whole period, to purchase and collect drafts on
the southern and even western offic.es, though almost the
whole of the active capital already lay in those quarters of
the -Union, and though the great obj~ct of the curtailments
was to draw funds from these points. The debt due in
Kentucky and Ohio, instead of being reduced, was within
this period actually increased upwards of half a million of
dollars. An accompanying exhibit will show, that, instead
of getting relief from the southern and western offices
generally, where curtailments had been ordered, the Bank
was still further exhausted by the intervening operations.
" At the commencement of this period, (a period commencing with the order for curtailments, and ending
March, 1819,) the Bank was indebted to Baring, Brothers
& Co., Reed, Irving & Co., Adams, Robertson & Co.,
and Thomas "~ilson & Co., the sum of 1,586,345 dollars
47 cents, growing principally, if not entirely, out of its
specie operations. Of this sum the greater part was paid
during this period. It had, however, contracted new debts
with Baring, Brothers & Co., and 'fhomas Wilson & Co.,
of which there remaine'd due, including any balance which
may have been due on the former accounts, the sum of
876,648 dollars: and within the same period it had disposed of 2,270,926 dollars 65 cents of its funded debt,
furnishing, by these compound operations, ways and means,
in addition to its curtailments, to the amount of 1,561,229
dollars 13 cents, and making, with these curtailments, a
reduction in the productive capital of the Bank, within

BANKING FROM 1818-19 TO 1819-20.

105

the period of eight months, of eight millions of dollars


and upwards.
" At the close of this period, the discounts on personal
security at Philadelphia, had been so long the subject of
curtailment, that but a small portion of them admitted of
further reduction, and, after great efforts, a rule had been
established to reduce the discounts which had been granted on the stock of the Bank, at the rate of five per cent.
every 60 days. The latter constituted the bulk of the
discounted paper, and so small a reduction afforded 110
relief against a great and immediate demand. Even this
small reduction was the subject of loud] angry, and constant remonstances among the borrowers, who claimed
the privileges and the favors which they contended were due
to stockholders, and sometimes succeeded in communicating their sympathies to the Board. All the funded debt
which was valuable had been disposed of, and the proceeds
exhausted. The specie in the vaults at the close of the
day, on the 1st of April, 1819, was only 126,745 dollars
28 cents, and the Bank owed to the city Banks, deducting
balances due to it, an aggregate balance of 79,125 dollars
99 cents.
"It is true there were in the l\lint 267,978 dollars 9
cents, and hl transitu from Kentucky and Ohio overland
250,000 dollars: but the Treasury dividends were payable
on that day to the amount of near 500,000 dollars, and
there remaiued at the close of the day more than one half
of the sum subject to draft, and the greater part of the surr.
which had been drawn during the day remained a charge
upon the Bank, in the shape of temporary deposits which
were almost immediately withdrawn. Accordingly, on the
12th of the same month, the Bank had. in its vaults but
71,522 dollars 47 cents, and owed to the city Banks a
balance of 196,418 dollars 47 cents; exceeding the specie
in its vaults 124,895 dollars 19 cents. It must again be
remarked, that it had yet the sum before mentioned in the
Mint, as well as the sum in transitu from Ohio and Kentucky-this last sum (250,000 dollars) arrived very seasonably on the next day, or a day or two thereafter. The
Bank in this situation, the office at New York was little
better, and the office at Boston a great deal worse. At the
same time the Bank owed to Baring, Brothers & Co. and

106

BANKING FROM 1818-19 TO 1819-20.

Thomas Wilson & Co., nearly 900,000 dollars, which it


was bound to pay immediately, and which was equivalent
to a charge upon its vaults to that am'ount. It had, including the notes of the offices, a circulation of six million
dollars to meet, to which were to be added the demands of
depositors, public and private, at a time, too, when the
scarcity of money caBed forth every disposable doUar, and
therefore created demands upon the Bank for an unusual
portion of the ordinary deposits and circulation.
"The sums which were collected daily on account of
the rerenue, in branch paper, were demandable the next
day in Philadelphia, and, at the same time, at every office
of the establishment, at the discretion of the officers of
Government. The revenue was principally paid in branch
paper, as well at Boston and New York as at Philadelphia,
and while the duties were thus paid at one counter, in
branch paper, the debentures, which amounted to one million of dollars every three months, were demanded and paid
at the other, in specie or its equivalent~money of the
place. l\Iany additional details, increasing the difficulties
of the moment, might be added. The southern offices
were remitting tardily, and the western not at all. All
the resources of the Bank would not have sustained it in
this course and mode of business another month!! Such
was the prostrate state of the Bank of the nation, which
had, only twenty-seven months before, commenced business
with an untrammelled active capital of twenty-eight millions
of dollars.
" But it would have been fortunate for the Institution if
its danger had ceased here. There still remained in some
of the trusts of the Bank, some of the men who had contributed most to involve it in this state of things. As I
must be brief, and the subject is very extensive, I will advert only to the principal instance of the misfortune and
profligacy to which I allude.
it In the office at Baltimore of which James A. Buchanan
was President, and J. 'V. M'Culloh was Cashier, there
were near three millions of dollars discounted or appropriated, without any authority, and without the lrnowledge
of the Board of the office, or that of the parent Bank! S.
Smith and Buchanan, of which firm J. A. Buchanan was
a member, James W. McCulloh aI:d George Williams (the

BANKING FROM 1818-19 TO 1819-20.

107

latter a member of the parent Board by the appointment


of Government,) had obtained of the parent Bank discounts, in the regular and accustomed manner, to the
amount of 1,957,700 dollars, on a pledge of 18,290 shares
of stock of the Bank. These men, without the knowledge
of either Board, and contrary to the resolves and orders of
the parent Bank, took out of the office at Baltimore, under
the pretence of securing it by pledging the surplus value
of the stock, already pledged at the parent Bank for its par
value and more, and other like surpIl1sp's over which the
Bank had no control, the sum of 1,540,000 dollars: this
formed a part of the sum bpfore stated to have been discounted by the President and Cashier of the office, without
authority. When this stupendous fraud was discovered,
attempts were immediately made to obtain seeurity ; and it
was obtained nominaliy to the amount of 900,000 doIJars.
It was probably really worth 500,000 dollars.
"The losses sustained at the oftlce at .Baltimore alone,
the great mass of which grew out of this fraud and others
closely connected with it, have been estimated at the immense sum of 1~671,221 dollars 87 cents. 'rlle aggregate
of the losses of the Institution, growing out of the operations which preceded the 6th of l\larch, 1819, exceeded
considerably 3,50ll,()OO dollars. 'fhe dividends during the
same time amounted to 4,410,000. Of this sum, 1,348,553
dollars 98 cents were received as the interest on the public
debt held by the Bank, which leaves, as the entire profits
on all the operations of Banking, the sum of 3,001,441
dollars 2 cents, which is less by at least half a million of
dollars, than the losses sustained on the same business! !
" When I was invited, and consented to fill the station
I now hold, I was alike ignorant and inapprehensive of the
situation in which I have just described the Bank, (truly, I
believe,) to ha\-e been. I was at the moment remotely situated from the scenes of its active business, and its important transactions. I had held, it is true, shortly before, to
oblige my friends, a place in the board of the office at
Charleston, at which I occasionally attended, and from
what I saw there, as well as from the public facts concerning the -transactions of the Bank, I was satisfied that there
was a great want of financial talent in the management of
it. But I had not the faintest idea that its power had been

108

BANKING FROM 1818-19 TO 1819-20.

so completely prostrated, or that it had been thus unfortunately managed or grossly defrauded. I never imagined
that when it had, at so much expense and loss, imported so
many millions of specie, they had been entirely exhausted,
and were not yet paid for: nor that the Bank was on the
point of stopping payment. It was not until the moment
I was about to commence my journey to Philadelphia, that
I was apprized by a letter from a friend, who had been a
member of the preceding Board, that he feared, in a few
months, the Bank would be obliged to stop payment.
" This was, indeed, appalling news. When I reached
Washington, I received hourly proofs of the probability of
this event. In Philadelphia it was generally expected. My
memory deceives me if I found anyone in or out of the
Bank, who entertained a sanguine belief of its being able
to sustain its payments much longer. On the contrary,
there was, (I think it cannot be forgotten,) ~ public and
general expectation that the nation was about to suffer the
calamity of a ,currency composed entirely of irredeemable
paper. The evil which thus threatened the country, is not
at all to be compared with a suspension of sound currency
in times of war and great national emergencies. The for~
mer can only be conceived by a people who have suffered
under a paper currency in profound peace. What a train
of evils does it produce 1 The destruction of public and
private credit, the national torpor, the individual ruin, the
disgraceful legislation, and the prostration of the morals of
the people, of which you may discover within your own territories some examples, will give you some, but a faint idea
of the calamity which was about to fall on the country.
"'rhus stood the Bank at the organization of the present administration. I was elected and took my seat as
President of the Board on the 6th of l\'Iarch, 1819. But
some time, of course, was necessary to look into the state
of the Bank before measures of relief could be projected.
Its danger, however, was too manifest and too pressing to
allow much time for this purpose. The principal errors
which produced the danger were fortunately of easy discovery, and to them the proper remedy was immediately
applied. The southern and western offices were immediately directed not to issue their notes, and the Bank ceased
to purchase and coHect exchanges on the South and West.

BANKING FROM

1818-19

TO

1819-20.

109

A special meeting of the Board was called, which the nonresident directors were summoned to attend, for the 9th
of April, (the next month,) and a correspondence with the
Secretary of the Treasury was commenced, entreating his
forbearance and his aid. To this officer I should be ungrateful and unjust, if I were not publicly to acknowledge
my obligations, and those of the Bank, for the countenance
and support he afforded to both in this struggle.
"At a meeting of the directors on the 9th of April,
which was very full, the state of the Bank was submitted
to them, a select committee appointed, to whom the subject of its difficulties was referred, and after very mature deliberation that committee made a report, which was unanimously agreed to. The principal means of relief proposed
and ageed to were:
" 1. To continue the curtailments previou8ly ordered.
2. To forbid the offices, at the South and 'Vest, to issue
their notes when the exchanges were against them. 3.
To collect the balances due by local Banks to the offices.
4. To claim of the Government the time necessary to
t~ansfer funds from the offices where money was collected to
those where it was to be disbursed, as well as like time
(until the difficulties of the Bank were removed,) to transfer funds to meet the notes of offices paid in the Bank or
other offices than those where they were payable according to their tenor. 5. To pay debentures in the same money in which the duties Oil which the debentures were
se~ured, had been paid.
6. 'fo obtain a loan in Europe
for a sum not exceeding 2,500,000 dollars, for a period not
exceeding three years.
" These measures, simple and obvious as they are, and
some of them so strangely overlooked so long, lifted the
Bank in the short space of seventy days, (from the 6th of
March to 17th of May,) from the extreme prostration
which has been described, to a state of safety, and even in
some degree of power, enabled it to cease its curtailments,
except at points where it had an excess of capital, to defy
all attacks upon it, and to sustain other institutions which
wanted aid, and were ascertained to be solvent; above all,
to establish the soundness of the currency, which had just
before been deemed hopeless; and in a single season of
business (the first) to give to every office as much capital
as it could advantageously employ."

110

BANKING FROM 1818-19 TO 1819-20.

The Bank was saved, and the people were ruined. For
a time, the question in Market street, Philadelphia, was,
every morning, not who had broken the previous day,
but who yet stood. In many parts of the country, the disstress was as great as it was in Philadelphia, and in others
it was still more deplorable.
" From all parts of our country" says lVlr. Niles, "we
hear of a l:;evere pressur~ on men in business, a general
stagnation of trade, a large reduction in the price of staple
articles. Real property is rapidly depreciating in its
nominal value, and its rents or profits are exceedingly
diminishing. Many highly respectable traders have become bankrupts, and it is agreed that many others must
" go": the Banks are refusing their customary accomoda..
tions: confidence among merchants is shaken, and three
per cent. per month is offered for the discount of promissory notes, which a little while ago were considered as
good as " old gold," and whose makers have not since suffered any losses to render their notes less valuable than
heretofore."
Four months afterwards, he says,t "It is estimated that
there are 20,000 persons daily seeking work in Philadelphia; in New York, 10,000 able-bodied men are said to be
wandering about the streets looking for it, and if we add
t~ them the women who desire something to do, the
amount cannot be less than 20,000: in Baltimore there
may be about 10,000 persons in unsteady employment, or
actually suffering because they cannot get into business.
We know several decent men, lately "good livers," who
now subsist on such victuals as two years ago they would
not have given to their servants in the kitchen."
A committee appointed by a meeting of the citizens of
Philadelphia, on the 21st of August, to inquire into the
situation of the manufacturers of the city and its vicinity,
reported, on the 2d of October, that in thirty mechanical
and manufacturing branches of trade, which they enumerated, which gave employment to 9188 persons in 1814)
and to 9672, in 1816, there were but 2137 persons employed in 1819.

* Weekly Registel', April 10, 1819.

t lb. August 7th, 1819.

BANK,ING FROM

1818-19 TO 1819-20.

III

A committee of the citizens of Pittsburg, who made


report on the 24th of December, stated that certain manufacturing and mechanical trades in their city and its
vicinity, which employed 1960 persons in 1815, employed
only 672, in 1819. =II'
"Never," said the Frankford (Ky.) Argus,t "within
the recollection of OlIr oldest citizens, has the aspect of the
times, as it respects property and money, been so alarming.
Already has property been sacrificed in considerable
quantities, in this and the neighboring counties, for less
than half its value. We have but little money in circulation, and that little is daily diminif,hing by the universal
calls of the Banks. Neither lands, negroes, or any other
article, can be sold for half their value in cash, while executions to the amount of many hundreds of thousands of
dollars, are hanging over the heads of our citizens. What
can be done? In a few months no debt can be paid, no
money will be in circulation to ans\ver the ordinary purposes of human life. Warrants, suits, and executions, will
be more abundant than Bank notes; and the country will
present a scene of scuffling for the poor remnants of individual fortunes, which the world has not witnessed."
A Kentuckian, writing in the Ed\vardsville (Ill.) Spectator, confirmed this gloomy accounLt "It has always,"
he said, " been my opinion, that of all evils which can be
inflicted on a free State, Banking establishments are the
most alarming. They are the vultures that prey upon the
vitals of the Constitution, and rob the body politic of its
life-blood. Look now at Kentucky! What a spectacle
does she present! Nothing is to be seen but a boundless
expanse of desolation! WeaIth impoverished, enterprize
checked, commerce at a stand, the currency depreciated,
all that was promotive of individual wealth, and all that
was indicative of State prosperity and advancement, plunged
into the great vortex of irremediable involvement. What
incentive, now, has the farmer to industry and exertion 1
How fruit.less would be the effort of the merchants, to raise
from their torpidity the fallen energies of the State I"
'If- See the doc~ments appended to the Report of the Senate of Pennsylvania.
t See '''eekly Register, June 7th.
t See Niles, Sept. 11th, 1819.

112

BANKING FROM

1818-19 TO 1819-20.

A writer in the Kentucky Gazette, quoted by Niles on


the 9th of October, observed: "Slaves which sold some
time ago, and could command the most ready money, have
fallen to an inadequate value. A slave which hires for 80 or
100 dollars per annum, may be purchased for 300 or 400.
A house and lot on Limestone street, for which $15,000
had been offered some time past, sold under the officer's
hammer for $1,800. A house and lot which, I am informed, was bought for $10,000, after 6,000 had been paid by
the purchaser, was sold under a mortgage for $1,500, leaving the original purchaser (besides his advances) $3,500
in debt. A number of sales, which excited at the same
time astonishment and pity, have occurred in this town.
Comparison of local sufferings should not be indulged in,
but I am told that Lexington is less afflicted than almost
any other part of the State."
Bankruptcies for large amounts were of frequent occurrence. Mention is made, among others, of the bankruptcy
of a merchant-tailor in the little town of York, Pennsylvania, who failed for the sum of eighty-four thousand dollars.*"
This was, indeed, an important affair in a town containing but 3,000 or 4,000 inhabitants; but it sunk into insignificance when compared with some of the failures in the
large cities. "So extensive were these among the merchants of the cities east of Baltimore, that it seemed to be
disreputable to stop payment for less than 100,000 dollars:
the fasltionable amount was from 2 to 300,000 dollars; and
the tip-top quality, the support of whose families had cost
them from 8 to 12,000 dollars a year, were honored with
an amount of debt exceeding 500,000 dollars, and nearly
as much as a million of dollars. The prodigality and waste
of some of these were almost beyond belief: we ha ve heard
that t.he furniture of a single parlor possessed (we cannot
say belonging) to one of them, cost 40,000 dollars. So it
was in all the great cities-dash, dash, dash-venders of
tape and bobbins transformed into persons of high blood,
and the sons of respectable citizens converted into knaves
of rank-through speculation,and the facilities of the abominable paper system ."t
" I am told that one merchant, who lately failed to the

'* Weekly Register, November 9th.

t lb. June 5th.

BANKING FROM

1818-19 TO 1819-20.

113

eastward, yet lives in a house for which, and its furniture,


he was offered 200,000 dollars in real money and refused it."
" Scenes of speculation are revealed and revealing that
sober people had no idea of.
Their effect penetrates
through all classes of society. The

day~laborer feels

it, and

suffers, because lJlr. IligltJlyrr could sign his name prettily,


and thereby cause his paper to pass through some of the
Banks. The faqner who improved his plantation by building a cosLly dwelling on credit, is compelled to sell both
farm and dwelling to pay the debts incurred in erecting the
house !-a pipe of wine, or a Cashmere shaw], compels
some merchants to stop payment! I have heard of one man
who failed for more than 8500,000, whose private wine
vault, as it stood at the time of his bankruptcy, was estimated to have cost him $7,000. This is said 10 have hap"
pened in the sober city of PhiIadeIphia.*
" l"wenty or thirty years ago, if a man failed for 100,000
dollars, the people talked as fearfully about it as about that
time the old women did of the fulfilment of' Love's prophecies,' who had determined that the world should come to
an end before the close of the last century. nut now, through
the blessings of the' paper system,' the facilities which it
afforded, and the speculations it nourished, it is not decent
for a man to break for less than 100,000; and if a person
would be thought a 'respectable bankrupt, he ought to owe
two or three hundred thousand or more. If with this extent of credit it should appear that he had not been worth
one cent for twenty years, and was not entitled to be trusted for a pair of shoes, so much the better !-it is evidence
of his qualities as a financier. And if, out of other peoples' money, he has given his wife 50,000 or 60,000 dollars,
it shows his prudence in providing for his family.'t
" The Federal Gazette of the 18th instant, contains six
solid, formidable columns of advertisements, by order of
the commissioners for conferring the benefit of the 'insolvent laws' of Maryland-in all about sixty-which gives the
,names, perhaps, of nearly one-third of the persons who are
, going through our mill' just at this time; several of whom
are those that lately counted their affairs by hundreds of
jf

Weekly Register, June 12th.

t August 14th.

114

BANKIXG FROM 1818-19 TO 1819-20.

thousands, or by millions of dollars; who erected palaces,


and furnished them with a degree of magnificence superior
to that which many German princes aspired to-w/w still
live in splendid ajjluence, and indulge themselves in tlte most
luxurious viands-their wives and children, or some kind
relati\'e, having been made rich through their 8windlings
of the people."*
On the 9th of December, a committee of the Senate of
Penns)"lvania was appointed to inquire into the causes and
extent of the public distress, and on the 29th of J nnuary,
1820, the committee made a report, through 1\lr. Raguet,
their chairman, in which they said" I n the performance of a duty of such high importance
as that which has been intrusted to your committee, they
have felt it incumbent on them to enter at large into the investigation of t.he subject contemplated by their appointment, in order that the people of the present day may be
correctly in formed as to the extent and causes of the evil
by which they are oppressed, and that the records of the
}Iouse may be furnished with a document, which may afford evidence at a future day of the miseries which it is
possible to inflict upon a people by errors in legislation, and
by the bad administration of incorporated institutions.
"In ascertaining tlte extent of the public distress, your
committee has had no difficulties to encounter. l\Iembers
of the Legislature from various quarters of the State, have
been consulted in relation to this subject, and their written
testimony in answer to interrogatories submitted to them
by the committee, has agreed, with scarcely a single exception, on all material points. 'Vith such a respectable
weight of evidence, added to that which has been derived
from the prothonotaries, recorders and sheriffs of the dif
ferent counties, from an intercourse with numerous private citizens residing in different parts of the State, as well
as from the various petitions presented to the Legislature,
your committee can safely assert, that a distress unexampled in our country since the period of its independence,
prevails throughout the commonwealth. This distress exhibits itself under the varied forms of"1. Ruinous sacrifices of landed property at sheriff's

* Weekly Register.

October 23d.

BANKING FROM 1818-19 TO 1819-20.

115

sales, whereby, in many cases, lands and houses have been


sold at less than a half, a third, or a fourth of their former
value, thereby depriving of their homes, and of the fruits
of laborious years, a vast number of our industrious farmers, some of whom have been driven to seek, in the uncultivated forests of the 'Vest, that shelter of whic h they
huve been deprived in their native State.
" 2. Forced sales of merchandise, household goods, farming stock, and utensils, at prices far below the cost of pro
duction, by which many families have been deprived of the
common necessaries of life, and of the implements of their
trade.
,. 3. Numerous bankruptcies and pecuniary em barrassments of every description, as \\/ell among the agricultural
and manufacturing, as the mercantile classes.
" 4. A general scarcity of money throughout the country,
which renders it almost impossible for the husbandman or
other owner of real estate to borrow at a usurious interest,
and where landed security of the most indubitable character
is offered as a pledge. A similar difficulty of procuring
on loan had existed in the metropolis previous to October
last, but has since then been partially removed.
"5. A general suspension of labor, the only legitimate
source of wealth, in our cities and towns, by which thousands of our most useful citizens are rendered destitute of
the means of support, and are reduced to the extremity of
poverty and despair.
"6. An almost entire cessation of the usual circulation
of commodities, and a consequent stagnation of business,
which is limited to the mere purchase and sale of the necessaries of life, and of such articles of consumption as are
absolutely required by the season.
"7. A universal suspension of all large manufacturing
operations, by which, in addition to the dismissal of the
numerous productive laborers heretofore engaged therein,
who can find no other employment, the public loses the re
venue of the capital invested in machinery and buildings.
"8. Usurious extortions, whereby corporations instituted
for Banking, Insurance, and other purposes, in violation of
law, possess themselves of the products of industry without
granting an equivalent.

116

BANKING FROM

1818-19 TO 1819-20.

"9. The overflowing of our prisons with insolvent debtors, most of whom are confined for trifling sums, whereby
the community loses a portion of its effective labor, and is
compelled to support families by charity, who hft ve thus
been deprived of their protectors.
H 10. Numerous law suits upon the dockets of our courts
and of our justices of the peace, which lead to extravagant
costs and the loss of a great portion of valuable time.
" 11. Vexatious losses arising from the depreciation and
fluctuation in the value of Bank notes, the impositions of
brokers, and the frauds of counterfeiters.
" 12. A general inabilitv in the community to meet with
punctuality the payment of debts even for family expenses,
which is experienced as well by those who are wealthy in
property, as by those who have hitherto relied upon their
current receipts to discharge their current engagements.
"With such a mass of evils to oppress them, it cannot
be wondered at that the people should be dispirited, and th~t
they should look to their representatives for relief. TheIr
patient endurance of suffering, which can only be imagined
by !hose who have habitually intermingled with them at
theH homes and by their firesides, merits the commendation of the Legislature, and prefers a powerful claim to
their interference.
" llavmg thus enumerated the most prominent features
of the general distress, your committee will proceed to point
out the cause which in their. opinion has occasioned it.
That cause is to be found chiefly in the abuses of the Banking system, which abuses consist, .filSt, in the excessive
number of Banks, and, secondly, in their universal bad administration. For the first of these abuses the people have
to reproach themselves, for having urged the Legislature to
depart from that truly republican doctrine which influenced
the deliberations of our early assemblies, and which taught
that the incorporation of tlte moneyed interest, already sufficiently power.lul of itself, 'Was but the creation of an odious
aristocracy, hostile to tile spirit of free government, and
subversive @f tlte rights and liberties of the people. The
second abuse, the mismanagement of Banks, is to be ascribed to a general ignorance of the true theory of currency and Banking, and to the avarice of speculators, desirous
of acquiring the property of others by an artificial rise in

BANKING FROM

1818-19 TO 1819-20.

117

the maminal value of stock, and by the sharing of usurious


dividends.
" In order that this subject may be clearly understood,
your committee have thought that the following concise history of Banking in Pennsylvania would be acceptable."
The committee then give a short; history of Banking in
Pennsylvania, and of the operations of the United States'
Bank, up to July, 1818, aft8f which they l'emark" This unwise procedure of replunging the people into
the debts from which they had been partially extricated,
and of involving others who had hitherto escaped, was continued fOf a time, but the dreadful day of retribution at
length arrived. The Bank, (i. e. the U. S. Bank,) discovered almost too late, that its issues had been extended beyond the limits of safety, and that it was completely in the
power of its creditors. It also foresaw that the payment of
that portion of the Louisiana debt, redeemable on the 21st
October, 1818, which was held by foreigners, might occasion a demand for a considerable amount of coin, that
the enhanced prices of China, India, and other goods, occasioned by the depreciation of tlte currency Lfrom the over issues of itself and the State Banks, would lead to a demand
for specie, and that as it was profssedly a specie Bank,
and liable, under a penalty of twelve per cent. per annum,
to pay its notes on demand, the same delicacy and forbearance \vould not be exercised towards it as to the State
Banks. These considerations compelled it to seek its own
safety, and from that moment a system of reduction comnlenced. This reduction operating upon the State Banks,
which had not profited by the opportunity afforded them of
contracting their loar,s whilst the other was extending,
obliged them also to diminish their transactions, and a general curtailment ensued which has not yet had its consummation. The severity of the second pressure commenced
in the city in October, 1818, and was continued without
intermission for a year; at the expiration of which time it
is said that the reductions made there by the N ati;Jna] Bank
alone have exceeded seven millions of dollars, and those by
the other Banks probably two or four more, The reductions of the country Banks during the three last years,
may be inferred from the following statement, which ex-

of

118

BANKING FROM 1818-19 TO 1819-20

hibits the amount of their notes in circulation at four different periods.


November 1st, 1816
$4,756,460
Do.
1817
3,782,760
Do.
1818
3,011, L53
Do.
1819
1,318,976
"From the foregoing history it will be seen, what influence has been produced upon the affairs of the community by the operation of the Banking system. Real property has been raised in nominal value, and thousands of
individuals have been led into speculation, who without
the facility of Bank loans would never have been thus
seduced. ".rhe gradual nominal rise in the price of Jand,
has produced an artificial appearance of increasing wealth,
which has led to the indulging of extravagance and luxury,
and to the neglect of productive industry. Foreign importations and domestic consumptions have thus been carried to an extent far beyond what the actual resources of
the country and people would justify, and in pursuing a
~hadow, the community has lost sight of the substance."
A similar Committee of Investigation, appointed by the
IIouse of Representatives, on the 13th of December, 1819,
Iuade report through their chairman, Mr. Wm. J. Duane,
on the 28th of January, 1820, that,
" As to the extent of the distress, it might be answered,
in the language of the resolutions under which your Committee act, that it is general: it extends, indeed, to the
pursuits and habitations of the former capitalist, as well
as to those of the more humble farmer and mechanic:
there is no part of the commonwealth into which calamity
has not penetrated, or in which numerous victims have not
been found. But with regard to the extent of the loss
which the State has suffered from the destruction of capita), the emigration of our citizens to the wilderness, the
stagnation of business, the deterioration of landed property,
and the prostration of manufactories, and above all, in the
change of the moral character of many of our citizens
by the presence of distress, your committee are utterly unable to decide: the extent of the mischief, they believe,
defies scrutiny and surpasses the power of calculation.
" From the numerous petitions which have been presented at the present session, your committee quote the

BANKING FROM

1818-19 TO 1819-20.

119

following extracts, which describe scenes of distress such


as have been :seldom, if ever, before beheld on this side of
the Atlantic:
Sundry citizens of Northumberland county decJare"The currency is so diminished as scarcely to suffice
for the transaction of the most ordinary business: the produce of the country has met with an unprecedented reduction: the greater part of the citizens of this once flourishing commonwealth, even with the utmost economy and
industry, are scarcely able to obtain sufficient articles to
sustain life: real and personal property are daily sacrificed,
and become the prey of speculators: debts are unpa.id,
creditors are dissatisfied, and the prisons are crowded with
honest but unfortunate persons, whose wives and children
must be a burden on the township, or suffer for want of the
mere necessaries of life."
Sundry citizens of Wayne county represent" From the fall of every kind of produce, the scarcity of
the circulating medium, and other causes, the general distress in our part of the State hath become so great and
alarming, as to call for the attention and wisdom of the
Legislature. Our most industrious citizens are no longer
able to meet their engagements, but their hard-earned property is daily sacrificed at a nominal value, and fulling into
the hands of a few speculators."
Sundry inhabitants of Pike county assert" At no time, since the Revolution, has greater distress
been felt than at the present moment. We consider the
Banking system to have been the principal cause: instead
of becoming, as was predicted, blessings to the people,
Banks have become like the scorpions among the children
of Israel, perfect beasts of prey. 'rhe property of the great
portion of our industrious people is brought to sale at onefourth of its value, and struck off to speculators, lea ving
honest creditors unpaid, and families reduced to beggary"
Sundry inhabitants of Huntingdon county represent" That the mass of the people are utterly unable, at once,
to pay their debts: that their property is selling at such rates,
that even the fees of law-officers aTe not realized: that the
industrious are impoverished, whilst the speculating part
of the community are daily growing more wealthy: that
the evil is only beginnil'lg, and demands legislative interposition."

120

BANKING FROM

1818-19 TO 1819-20.

A .memorial from sundry citizens of the western parts of


the State, asserts" That embarrassment is universal: that the sordid and
avaricious are acquiring the sacrificed property of the
liberal and industrious: that so much property is exposed
to sale under execution, that buyers cannot be had to pay
more for it than the fees of offices: that those mischiefs,
instead of diminishing, are daily increasing, and that overtrading and the facility of getting credit have produced
these effects."
The petition of the inhabitants of Fayette county representsH That the fictitious capital and boundless credit extended by Banking, the almost universal spirit of speculation,
the prostration of manufactures by the mistaken policy of
the National Government, the introduction of luxuries and
extravagancies, and a reduction of exports, have produced
a long train of calamities: that industry is paralized-that
the precious metals have vanished-that the Banks are
tottering-that litigation is unprecedented in extent, and
ruinous. in its effects-that many merciless creditors, not
content with plunging unfortunate debtors into the most
abject poverty, frequently take from them the whole of that
property to themselves, which in better times would pay
the sums due to all, leaving the unfortunate debtor in jail,
and his family in misery.
" These are but a few of the extracts, which might be
presented to the House and placed upon the journal: but
these are deemed sufficient, accompanied by the remark,
that these representations are not only supported by all the
other petitions presented at this session, but by the testimony of the members of the Legislature, coming themsel ves from all quarters of the State."
The committee then give a- short sketch of the commercial history of the country, after which, they say"In defiance of all experience, and in contempt of
warnings almost prophetic, which were given to them at
the time, the people of Pennsylvania, during an expensive
war, and in the midst of great embarrassments,established
forty-one new Banks, with a capital of seventeen and a half
millions dollars, and authority to issue Bank notes to double that amount! In consequence of this most destructive

BANKIXG FROM

1819-20 TO 1820-21.

121

measure, the inclination of a large part of the people, created by past prosperity, to live by speculation and not by
Jabor, was greatly increased: a spirit in all respects akin
to g{lmbling, prevailed; a fictitious value was given to all
descriptions of property: specie was driven from circulation, as if by com mon consent, and all efforts to restore
Isociety to its natural condition were treated with undis\guiscu contempt."
~ Thes.e remarks are followed by a short view of operation. s
subsequent to the war, after \vhich, the Committee declare-"' A new measure, however, remained to be adopted,
that was reaJJy to close the last scene in the drama of error:
the currency had already nearly vanished, but was temporarily restored on the seaboard. The enormity of fictitious
credit began to be fclt: the abusive extent of paper issues
,vas about to effect its own remedy in the State, when Congress created a corporation, with authority to circulate upwards of one lWlldred millions of a new paper medium-a
orporation spreading its hranches over the Union with the
aneful influence of the fabled Upas.
" Awakened by t),e quick succession of events so disasrous, from the dream of perpetual prosperity under which
hey had so long been entranced, the people now find
hemselves involved in distresses, against which no proviion had been made, and from which, they allege, they can
~nd no refuge but in legislative interference."

CHAPTER XIII.

Of Banking from 1819-20 to 1820-21.


Appended to the report of the committee of the Senate
are a number of questions which were
~ropounded to members of the Legislature, together with
the answers whIch were given. From these answers we
have formed the following table of the price of the best improved Jand in Pennsylvania, at three different periods.
The second column gi"'es the price the land bore in the
height of the speculation, which was in different coun!

of Pennsylvania,

122

1819-20 TO 1820-21.

BANKING FROM'

ties in different years, as the Banks extended their operations into them.

1809
Bedford,
Lebanon,
Brad ford and
Tio~a,

Somerset and
Cambria,
Cumberland,
Dauphin,
Adams,

1819

$30 to 40
40 to 60

80 to 100 (I815)
20 to 30
130 to 150 (1816-17) 50 to 70

6 to 14

~
~
~

10 to 20 (1814)

3 to 10

15 to 50 (1814)

5 to 20

40 to 60

]50 to 200 (1813-14) 25 to 40i


24
35 (0 45 (1815-16) 12 to 15
50
60 to 100 (1814)
no pl'ice
100 250 to 300 (1813-14) 50 to 70
120 100 to 150
40 to 75

16 to
30 to
75 to
75 to
40 to 50
80 to 100

80 to 90 (1815)
150 to 200

Northampton
~
Wayne & Pike, ~

80 to J.OO

100 to 140 (1815-16) 15 to 20

Bucks,
Huntington,

50 to 60
20 to 30

] 00 to 110 (1814-15) 55 to 65
40 to 60 (1815)
20 to 30

Lan~aster,

Dela \Val'e,

Northumberland,
Bel'ks and

Schuylkill,

~
~

30 to 40
80 to 100

The official valuation of real and personal property in


the State of New York, exhibits an equally striking fall~
It was, in
1818,
lR19,
1820,

$314,
281,
256,

913,
862,
603,

695,
793,
300,~

The depression of prices continued throughout the yeaJi'


1820, and, though money was abundant with retired capi~
talists, the pressure on the great body of industrious peot
pIe was very severe. "Our difficulties in commerce," saiq
a director of the United States' Ban k, writing to a friend
in England, " continue without abatement. Men in busi~
ness are like patients in the last stage of consumption!,
hoping for a favorable change, but growing worse every
day till they expire. Dismal as are the prospects on your
side of the water, they are wor~e here. You have some
regular and profitable trade-we have none, It is all scamper and hap-hazard,"
The director then states that in
former times he would, without hesitation, have trusted
some men among his cllstomers with goods to the amount
of 100,UOO pounds sterling; but he adds, "now I do not

* Niles, December 24th, 1821.

BANKING FROM

1819-20 TO 1820-21.

123

know the persons doing business; and there is not one


among them whose order I would take for 1,000 pounds.
What a difference! A long continuance of distresses in
the commercial world has had a bad effect on the morality
of the country. The vast number of failures takes away the
odium. l\Ien fail in parties for convenience; and the barriers of honesty are broken down by a perpetual legislation
suited to the condition of insolvent debtors. We have now
no imprisonment for debt. Credit is become very rare, as
you may well imagine, for we have nothing to depend upon
but a man's honesty. Besid~s our commercial distresses,
we are suffering great alarm in this city (Philadelphia) from
incendiaries, who have succeeded in setting fire to a great
number of buildings. On Sunday evening our theatre was
entirely destroyed.
" Houses which rented for 1,200 dollars, now rent for
450 dollars. I~"uel which cost 12 dollars, now costs 52- dol
lars: flour which was 10 and 11 dollars, is now 4 Z; beef
25 cents, now 8 cents: other things in proportion. It is
thus true we now pay less for these necessaries, but we can
make no money. The farmer is become as poor as a rat:
the labor of the f~Hm costs him more than the produce is
worth. lIe cannot pay the storekeeper, and the storekeeper cannot pay the merchant.
" .Mail robberies and piracies are quite the order of the
day. Two men were hung at Baltimore a few months ago
for robbing the mail: two more will experience the same
fate, in a few days, at the same pla.ce, far the same crime.
Two men are to be hung there a week hence for piracy,
and five others are under sentence of death.'~*
" 1\'Ianey is plenty," says l\1r. Niles, on the 4th of lVlarch.
," The six per cent. stocks are at 103 to 104; but there is
little use for money in the hands of those who do not owe
it. IIence it has :'1 sluggish currency, and those who have
it do not know w hat to do with it for themselves, and are
afraid to trust it to others."
On the 15th of April, the same writer says-" It has become a serious affair to the laboring man to purchase himself a new garment-his wages, on an average, do not pur1f See Niles,
vol. 18, p. 387. The Jetter appeared in the London
Courier, 011 the 11th of May, 1820.

124

BANKING FROM 1819-20 TO 1820-21.

chase him half as much as they did, and he is continually


Many of the mechanical professions have equally declined: as an instance,
though our population is one-half greater than it was ten
years ago, it is certainly a fact that the printing of books is
not now half so extensive as it was then. The desire to
read is not lessened, but the means of purchasing are denied-the most common school books are a drug. Hatters,.
shoemakers, and tailors, and even blacksmiths, whose work:
seemed to be indispensable, have lost, in general, much of
their former businesses--from a fourth to one-half. This
is the result of necessity, and those who might purchase,
abstain, in looking to a fearful future."
On the 16th of September, he says-" Five years ago all'
the large stores in l\larket street, &c., Baltimore, were cut
into two, and then there was not enough of them; and a
dwelling house eould hardly be had-if a man talked of
moving, fifty were applying for the property. The stores
have resumed their old shapes, and dwelling houses arc
abundant. I believe we have 10,000 less inhabitants than
we had in 1815; and, by calculation, I have concluded
that the property on l\Iarket street at this time, if all on
rent, would produce a sum less by 8250,000 a year, than it
would have produced as rent in that year.
"Desire no longer presses on enjoyment with the laboring classes, but necessity presses on necessity; and, one
by one, they give up their enjoyments which they hitherto
delighted to indulge themselves in. This is evident to every
person who will look at society. The laboring people cannot get much money, and therefore cannot spend much.
FThe average price of wheat is hardly more than fifty cents
a bushel, and the farmer cannot buy many luxuries at that
rate: a mechanic is hardly half his time employed, or at
reduced wages, and must therefore limit his expenditure."
It was natural that, in this condition of things, the public mind should be employed on projects for alleviating distress, if not for preventing its recurrence.
One measure that was suggested, was the requiring of
cash payment of duties. This would have been beneficial,
insomuch as it would have lopped off one of the branches
of the super-extended credit system, but it would have afforded no immediate relief. An effort was made in Con-

uncertain as to obtaining even that.

BANKING FROM

1819-20 TO 1820-21.

125

gress to carry through a measure of this kind, but it was


not successful.
Another effort, which was attended with no better success, was to restrict sales by auction. There is no cause
to regret that this effort did not succeed. The only way in
which the value of many kinds of property could be real.
ized in this season of distress, was by sales by auctions,
and restrictions on this business would have increased the
sufferings of the public.
A large portion of society were very anxious that a bank"rupt law should be passed, and it may be doubted if the
mercantile part of any community ever stood more in need
of relief. But the bill wi-.icll was reported to Congress
was modelled on the English system, and not adapted to
the state of things in America. It might, if it had been
adopted, have afforded relief to many worthy men; but in
its general operation it would probably ha"'e been productive of great evils. It was rejected by a decided majority.
The me~sure from which most was hoped, and which
was pushed with most vigor and most perseverance, was an
increase of the dllty on imports. "rhe dullness of business,
the lowness of prices, and the \vant of employment, which
were produced by the re-action of the Banking system,
were all urged as reasons why Congress should afford adequate " proteetion to domestic ind ustry."
It is no part of our plan to discuss the tariff policy. But it
belongs to the history of Banking, to state that the raising of
the duties on imports, to a height which now threatens tocon\1ulse if not to rend our Union, was one of the conE:equences
of the great re-action of 1819. As the effects of the re-action were felt for several years, the advocates of the restrictive system had full leisure for applyiLg all the arguments
in support of their favorite policy, which they could "derive
from the continued lowness of prices, duJIness of business,
and want of employment.
The evils produced by the system of paper money and
moneyed corporations, are of such a nature that they cannot be remedied by acts of legislation. When they come
they must be endured. If we will have the system, we
must bear its consequences. But there was one measure
which, as it might have alleviated the distress, we have
sometimes wondered was not adopted: 'Ve have wonder-

126

BANKING FROM 1819-20 TO 1820-21.

ed it was not adopted, because it is a measure which has


been adopted in other countries, and in our own country
at other times. 'Ve mean an equitable adjustment of the
affairs of debtor and creditor. When the South Sea bubble bursted, the British Parliament saw that to require a
literal fulfilment of the obligations which were affected by
that stock-jobbing concern, would be to give the getters up
of that scheme all the property of their miserable dupes.
It therefore, in some cases, reduced the amount of money
to be paid, as much as nine-tenths. During the Revolutionary War, " scales of the depreciation" of continental money
were from time to time published by the Legislature, by
which the courts were governed in enforcing such contracts as were submitted to adjudication.
rrhe great Banking bubble of America was the same in
principle as the South Sea bubble, but of longer continuance, and involved in it the fortunes of the whole community. But nothing like an equitable adjustment of the affairs of debtor and creditor was attempted. An obligation
to pay 10,000 dollars entered into in 1816 or 1818, when
the current dollar was in some parts of the country worth
perhaps but 50 cents in silver, was enforced according to the
strictness of the letter, in 1819 and 1820, when the current dollar was of equal value with the legal dollar, and
worth one hundred cents in silver.
It is an awful thing to change the money standard of a
country: but it is equally awful to refuse to recognize such
a change, after it has actually been made. Effecting an
equitable adjustment of the affairs of debtor and creditor,
by a legislative or a judicial recognition of the practical
changes which had been made in the standard of value,
would not have "impaired the obligation of contracts."
Both debtor and creditor, when they entered into the contract, had the " current" dollar in view. The disorder was,
however, so general, that an equitable adjustment of con...
tracts would have been a work of great difficulty, if not of
impossibility. Perhaps the courts, looking forward to the
operations of future years, acted wisely in ,regarding the
dollar as a fixed quantity, though it was, in fact, during
these years, a quantity that was always changing.

B.\NKING IN THE 'VESTERN STATES.

127

CHAPTER XIV.

Of Banking in tlte lVestern States.


'The first paper issuing institution 'vest of the Alleghany
mountains, was the Lexington Insurance Com pan y, which
was incorporated in 1802, with a capital of 150,000 dollars, and for which I-Iumphrey Marshall, the historian of
Kentucky, says, Banking privileges were surreptitiously obtained. The business being found to be lucrative to those
who were engaged in it, the Kentucky Bank was instituted in 1807, with a nominal capital of one million of
dollars.
The Miami Exporting Company was instituted at Cincinnati, Ohio, in 1803, with a capital of 200,000 dollars. As
its title indicates that it was established ostensibly for commercial purposes of another nature, perhaps Banking privileges were obtained for it surreptitiously, as in the case, in
the previous year, of the Lexington Insurance Company.
Be this as it may, the l\liami Exporting Company did
Banking business; and in the nine years subsequent to its
institution, five other Banks were established in different
parts of the State, making in all six Banks in Ohio in
1812, with a nominal capital of 1,200,000 dollars.
These Banks maintained specie payments till within a
month or two of the close of the war. 'This is a fact not
generalJy known, but it is placed beyond doubt by a statement made by l\'1r. IIawkins in Congress, on the 17th of
January, 1815, that "even the Banks of Kentucky and
Ohio, where specie abounded, had at length been compelled in self-defence to stop payment of specie."
It must be evident from this, that if the United States'
Government had immediately compelled the Banks of the
great Atlantic cities to redeem the pledge they had given
in the preceding August, the western country might have
suffered but little from the suspension of specie payments.
But, when the United States' Government connived at the
suspension of specie payments, sanctioned the use of inconvertible paper, and by its fiscal manreuvering encouraged
the issue of additional amounts of such paper, it was impossible that the mania which had reached Pennsylvania,

128

BANKING IN THE \VESTERN STATES.

from New England, through New York and New Jersey,


should not extend into Ohio and Kentucky.
Kentucky was, however, at first comparatively moderate.
All she did at the close of the war, was to authorize the
Bank of Kentucky to increase its capital to three millions,
and to establish thirteen branches. Seven of these branches .
were in operation in 1816. Ohio, apparently, went further I
into the system; for, we have seen a list of twenty-one
chartered institutions which were in operation in that State ;
in 1816, and allusion is made to others which were carrying
on the Banking business without charters.
Still, the issues of paper in the Western States were
moderate when compared with those in the Middle States.
Mr. 'Villiam Jones, the first President of the United States'
Bank, stated, in the documents laid before Congress in
1819, that, " at the time of the. subscription to the stock of
the Bank, specie was at six per cent. at the westward, and
at fourteen per cent. in Philadelphia, New York, and Baltimore." In the table appended to lUI'. lUcDuffie's report,
the rate of exchange at Lexington on Boston, in July 1816,
is stated to have been two per cent.-a sure proof that the
currency of Kentucky was not at that time much, if it
was any, depreciated.
The issues of the western Banks were probably increased
considerably in the last six months of 1816: and in tkis
or the following year, the system was extended into Indiana,
Illinois and l\lissouri.
It was about this time, that branches of the United'
State's' Bank were established in the West, and they sought,
to make a profit, less by circulating their own paper, than
by giving drafts on the eastern cities, receiving in exchange
notes of the local Banks, and requiring interest to be paid
on the same. This was rather a round-about way of inducing the local Banks to extend their issues, but it
was the most effective that could be adopted. Western
Bank paper being exchangeable for United States' branch
drafts, and Un ited States' branch drafts being exchangeable for European products in the Atlantic cities, the effect
was similar to that which would have been produced by
making western Bank notes current in New York and
Philadelphia.
The full effects of this system were felt in the year 1818,

BANKlNG IN THE WESTERN STATES.

129

or in the second year of active operations of the United


States' Bank. Mr. Niles, then, speaking of "new Banks
establishing or about to be established," says, " Behold forty-three new Banks authorized in Kentucky-half a score
in Tennessee-eight in Ohio," &c. Of those authorized
in Kentucky, at least tltirtp1ivc, since known as the Independent Banks of Kentucky, went into operation. Their
nominal capital was between seven and eight millions of
dollars, but their real capital must have been small: for,
the American Quarterly Iteview says, the same specie
was used for different Banks, and only remained long
enough in each for the law to be complied with.
If the months of lVlay , June, July, and August, ] 8] 5,
were" the golden age of Philadelphia," the first months of
the year 1818, were the golden age of the western country.
Silver could hardly have been more plentiful at
Jerusalem in the days of Solomon, than paper money
was in Ohio, Kentucky, and the adjoining regions. But,
when the United States' Bank found it necessary to curtail,
money became as scarce in the \Vest as silver is in Jerusalem under the Turkish despotism.
The Bank of the United States was very sudden in its
demands, for its necessities were such as to admit of no
delay. An Ohio paper says that the branch at Cincinnati
called on the local Banks of that town for a balance of
700,000 dollars, in requisitions of twenty per cent. every
thirty days. This compelled the Bank of Cincinnati to
stop payment about the middle of November, 1818, and in
two days afterwards the Bunk of Kentucky unexpectedly
followed its example. A strong expression of public opinion compelled the Bank of Kentucky to resume specie
payments in less than a week, and it continued to pay specie
till the early part of 1820.
It is stated that in the twelve months preceding June
26th, 1819, 800,000 dollar~ in specie were drawn from
Ohio. If this be true, the wonder is not that only six or
seven Banks in that State paid specie in August, 1819,
but that they were not all bankrupt. This was the fate of
the Independent Banks of Kentucky. Some of them maintained a show of specie payments till August, and afterwards paid out notes which were lent .them by the Bank of

130

BANKING IN THE }VESTERN STATES.

Kentucky, redeemable in 365 days after date: but, towards


the close of the year few of them paid any thing.
The Bank of Vincennes (Indiana) had recourse to a
very ingenious expedient. It issued notes payable at its
branch at Vevay, nine months after date, printing the
words "nine months after date" in very small letters.
All this, however, availed nothing. It went with the
others.*
'rhe effect which the sudden withdrawal of specie and
discrediting of Bank paper, had on prices in the western
country was very distressing. "It is said ,) remarked Mr.
Niles on the 2d of September, 1820, "but we know not
how to believe it, that corn is selling at 10, and wheat at
20 cents per bushel, specie, in some parts of Kentucky.
At this rate how are debts to be paid 1" Mr. Niles appears afterwards to have had other evidence sufficient to
overcome his incredulity, for he remarked on the 15th of
September, 1821: " A gentleman in Western Virginia
directs the Register to be stopped, because he used to pay
for it annually with one barrel of flour, but that three
will not do it now. Another, a miller in Ohio, on paying
his advance to my agent, observed, that he had sold fOUl
barrels of flour to obtain the note of five doUars which
was remitted."
In other publications we have evidence of tIle lowness
of prices. For example: In the United States Gazette of
May 23d, ] 821, corn is said to have been sold at Cincinnati at 10 cents a bushel: and the same periodical of 1st
of June, has a notice of a letter from a practical farmer
in IIarrison County, Ohio, stating that wheat had fallen to
25 cents a bushel, and in some instances to 12~ cents. A
letter from Greenfield, Ohio, dated .May 3d, 1821, and
quoted in the Gazette of June 23d, states that wheat was
sold at 12! cents. a. bushel, and that whiskey was dull at
15 cents a gallon.t The Weekly Register of May 19th,
*' The Baoks in the extreme West did Ollt all stop payment till a year
or two after the failure of the Banks in Kentucl\y. The Shawneetown
and Edwardsville Banks, in Illinois, paid specie in August, 1821. One,
at least, of the Banks ill Missouri, continue4 to pay specie uotil the
lattel' part of 1821; and several of the Ohio Banks appear to have paid
specie in the midst of all the confusion.
t Towards the close of the year 1821, Boar rose at Cincinnati to
$3 50 a barrel.

BANKING IN THE \VESTERN STATES.

131

gives the following quotation from" a lute Pittsburg Mercury." "Flour, a barrel, 81 : whiskey 15 cents a gallon:
good merchantable pine boards, 20 cents a hundred feet:
sheep and calves 81 a head. Foreign gOOGS at the old
prices. One bushel and a half of \, heat \ViI! buy a pound
of coffee: a barrel of flour will buy a pound of tea;
twelve and a half barrels will buy one yard of superfine
broadcloth."
While the staples of the western country were at this
low price, the people were deeply in debt to the United
States Government, to the merchants of the Atlantic cities,
to the United States' Bank, to the local Banks, and to one
another. The plentiful issues of paper had led to great
speculations in the public lands. The wild lands of the
West had been sold, in some instances, as high as forty or
fifty dollars an acre. The sum due to Government on account of these purchases, exceeded twenty-two million dollars in the latter part of 1820. The sum due to one of the
branches of the United States' Bank, tlwt at Cincinnati,
exceeded two million dollars. The sums which were due by
the western people to one another, to the local Bauks, and
to t}~e merchants of the Atlantic cities could not easily be
calculated.
To relieve the public distress, the Legi:.;]ature of Ohio
passed a law to prevent property from being sold unless it
would bring a certain amount, to be fixed by appraisers.
This law operated \iery unequally. Another law of the
same State, to prohibit buying and selliug the notes of chartered Banks, would have increased the mischief, if it had
not, happily, been such a law as, from the nature of things,
could not be enforced.
Kentucky adopted what has been called the" relief system," in all its extent. Stop laws, stays of executions, and
replevin acts, followed one another in quick succession.
And Commonwealth's Banks, or State Loan Offices, were
established in Kentucky, Indiana, Illinois, and lVlissouri,
with power to issue millions of paper money. The creditor had no alternative but to receive this paper or wait for
payment till better times should arrive.
Go""ernor Adair, in his message to the Legislature, in
October, 1821, said, that" the paramount law of necessi..
ty" had compelled Kentucky to resort to a policy against

132

BANKING IN THE WESTERN STATES.

which strong objections might be brought: but, he added,


" let it never be forgotten, that the measures adopted have
completely realiz~d the proposed end: that an agitated and
endangered population of half a million of souls, has been
tranquillized and secured, without the infliction of legal justice, or the example of violated morality."
All the people of Kentucky did not think so highly of
the system, and the J lldges of the Court of Appeals were
among the dissidents. They resolutely refused to acknowledge the constitutionality of the" relief laws:" and the
Legislature established a new Court of Appeals, the judges
composing which were friendly to the relief system.
'rhe people divided into two parties, and the contest was
conducted with great violence. The party friendly to the
new Court of Appeals had the ascendancy for several years.
In 1824, they numbered sixty members of the Legislature,
while their opponents numbered but forty. In the session
of 1825-26, they appear to have been less powerful, for we
find that preparations were made to defend the records of
the new Court of Appeals with powder and balI.* In the
fall of 18;26, the friends of the Old Court elected a majority of members of the Legislature. A change of only
ninety-one votes at the polls, would have given their opponents the majority of mem bers. The Old Court party has,
however, ever since retained its ascendancy; and the relief system is at an end.
All parties now are wiIIing to admit that this " relief system" did great evil. It did not effect an equitable adjustment of the affairs of debtor and creditor. 'rhat could
have been effected only by a legislative or judicial recognition of the changes which had been made in the standard
of value, and a separate adjudication in each case. It was
only by accident if a man received payment in paper of the
same value as that which was current when the debt was
contracted.
'rhe Bank of Kentucky commenced discounting on the
27th of April) 1821. Its notes were sold almost immediately at 70 cents in the dollar; and continued to depreciate
till April or l\'lay in the ensuing year, when the exchange
was 210 paper dollars for 100 silver dollars. On the 28th
of July, 1821, which was ten days after it commenced its
... See Philadelphia Gazette of January 1st, 1826.

BANKING IN THE SOUTHWESTERN STATES.

133

issues, t.he notes of the State Bank of Illinois were 50 per


cent. below par. In addition to the loss which each creditor sustained Ly being paid in money of this description,
he was liable to further loss from the paper depreciating
while it remained in his hands.
The other branches of the relief system, the stop laws,
the appraisement laws, the stays of execution, and the replevin acts, tended to destroy the confidence of men in one
another and in the Government.
"The relief system is at an end; but its evil effects will
be felt in the West for t\venty years. What, then, ought
we to think of the Banking system, in which the relief system originated?

CHAPTER XV.

Of Banking in the SouthwestC1'll States.


From Mr. Gallatin's and lVIr. Crawford's tables, there
appear to have been three Banks in operation in Louisiana,
in 1814, with a capital of S 1,432,300; two in Tennessee,
with a capital of $2] 2,9G2; antI one in ~Iississippi, with a
capital of $100,000.
The Banks of New Orleans suspended specie payments
in the latter part of April, 1814,* about four months sooner
than the Banks of Philadelphia. The pretext was, that a
contraband trade was drawing away all the specie. The
fact mav have been as stated: but if the Banks of New
OrIeans had not issued to excess, no contraband trade, or
any other kind of trade, could have deprived Louisiana of
its metallic money. The excuse was, however, quite as
good as that made by the Banks of the l\'liddle States, viz.
" 'That dealings in British Government bills of exchange,
and importations of foreign goods through the Eastern
States, were drawing off all the silver."
rThe Bank of Na~hville, Tennessee, diu not stop specie
payments till July or August, 1815, nearly a year after the
Banks of Philadelphia.t
J

'" See Niles' Weekly Register for l\fay or J line, 1814.


t lb. August, 1815.

134

BANKING IN THE SOUTHWESTERN STATES.

The Banks in Tennessee in 1817, were the Fayetteville


Bank of Tennessee, with a capital of 200,000 dollars; the
NashvilIe Bank, with a capital of 400,000 dollars; and the
State Bank, with a capital of 400,000 dollars. In November 1817, the capital of the State Bank was increased to
800,000 dolIars, and authority was given to it to accept a
batch of Banks as branches, which thereby swelIed its
capital to 1,600,000 dollars. A similar union was effected
between the Nashville Bank and a number of others, by
which the capital of the Nashville Bank was augmented to
1,031,705 dollars.*
Between the years 1817 and 1820, the capital of the
Bank of Mississippi was increased from 100,000 to 900,000
dollars: and the number of Banks in Louisiana was increased from three to four, and their capital from 1,432,300
to 2,597,420 dolIars. About the same time, the system was
introduced into Alabama, by the establishment of the
Planters' Bank at Huntsville.
'The same causes that led to the extension of Banking
operations in Ohio and Kentucky, were what led to an extension of Banking operations in the Southwestern States;
and they all felt the. reaction of the system about the same
time.
In July, 1819, the Banks of Tennessee stopped payment: and, soon ait.er; a law \-vas passed forbidding the
issuing of executions on judgments, for two years, unless
the plaintiff would consent to recei\'e "current notes" in
payment.
As the "current notes," (i. e., the notes of the nonspecie-paying Banks of the State,) were many per cent.
below par, this was making a considerable abatement of
the demands of creditors. It gave them cause for complaint,
but did not effectually relieve debtors; and, as the public
distress increased, a special meeting of the Legislature
was held in June, 1820, to consider the state of affairs,
The Governor told them,in his message, " He was fully persuaded much good would result to the country generally,
by extending the time in which payments can by the present laws be forced, unless the creJitor should, by his own
voluntary act, make terms of accommodation, and, instead
if

American Quarterly Review.

EANKING IN THE SOUTHWESTERN STATES.

135

of cash payments, take from the debtor such valuabie


estate, either real or personal, as it may be in his power to
give, and at such abatement under its estimated value as
you may direct." The Legislature, in acting on this subject, not only adopted the proposition of the Governor, but
established a relief Bank, with a capital of 1,000,000 dol.
lars, to make loans to debtors only. As a fund for the re
demption of the notes of this Bank of the State of'rennes
see, as it was caHed, the proceeds of certain public lands
weff~ appropriated.
At the same time, an act was passed
authorizing defendants to redeem in two years all lands
and negroes sold under execution, on paying to the purchaser ten per cent. on the money he might have advanced.
Gen. Jackson, Col. Edward Ward, and other citizens,
remonstrated against these proceedings, pronouncing them
inexpedient, injurious in their tendency, and in violation of
the Constitution. Gen. Jackson, in particular, was very
energetic in his opposition; and a number of the most
respectable citizens of the State united with him in sentiment. Their combined efforts could not prevent the Legislature from adopting the system: but it would hardly be
correct to say. that their opposition had no effect. The
issues of the Bank of the State of Tennessee were mode
rate, when compared with those of the Bank of the Commonwealth of Kentucky: and Tennessee appears not to
have suffered as much as her sister State, by the relief
system.
In .l\'Iarch, 1821, the notes of specie-paying Banks were
at an advance, at Nashville, of 13 to 17 per cent., when
estimated in notes of the Bank of the State of Tennessee,
and the currency does not appear to have undergone any
sensible improvement for several years; for, we find 'Tennessee paper quoted in the Philadelphia papers, of August,
1824, at 25 per cent. discount.
In July, 1826, the Bank of Nashville gave notice of its
intention again to resume specie payments. It commenced
them accordingly, in September; but 260,000 dollars in
.specie were drawn from it in seventy days, and it could
bear no further drafts. The only Bank then remaining,
(except the private Bank of Yeatman, Woods & Co.,) was
the Bank of the State, the notes of which are quoted in

136

BANKING IN THE SOUTRWESTERN STATES.

the Philadelphia papers of 1829 and 1830 at ten per cent.


discount.
The nDtes of the Banks of Mississippi and Louisiana
appear, from the Philadelphia price currents, to have been
subject to little, if any, more vacillation than those of the
Banks of the lVliddle States: but the curreucy of Alabama
has been very bad.
In 1821, the notes of the local Banks being discredited,
no way was found of paying public expenses in Alabama,
but by issuing comptroller's warrants. These would not
circulate, as some thought, because they were on Lad
paper and not handsomely printed; whereupon, it was proposed to send to Philadelphia for blank warrants, handsomely engraved, and printed on silk paper.
In 1824, lluntsville notes were at 30 per cent. discount
at Philadelphia.
In the next year, the Bank of the State of Alabama was
brought into operation. All the spare funds of the State
were devoted to its establishment, and its capital has been
augmented from year to year, as the means of the State
Government have increased.
ts loans are distributed
among the different counties in proportion to their population. Its notes do not appear ever to have been at par in
the Philadelphia market.
In 1828, there was no local Bank in operation in Kentucky, none in Indiana, none in Illinois, none in l\'liseouri,
but one in Tennessee, one in Mississippi, and one in AlaLama.
Branches of the United States' Bank were, however 1
doing an extensive Qusiness in the West: and Judge
Catron, of Nashville, in an address which he published in
J une 1~29, pronounced the crisis a dangerous one. "Millions" he said, "have been loaned by a single Bank-the
crush of 1819 must overtake us."
Directing his remarks "to the cultivators of the soil and
the laboring people of Tennessee," he said-" The great
pressure upon the people of this State for money, growing
out of the excessive loans of the Branch Bank of the United
State~' at this p1ace, and the yet more excessive usury
(from 5 to 10 per cent. a month,) every where prevailing,
has induced me to address you this note upon a subject
maturely considered of, during the last ten years; of the

BANKING IN THE SOUTHWESTERN STATES.

137

necessity of which, my convictions have been confirmed by


experience and observation.
"I propose that the Legislature of Tennessee, at their
next session, pass a Jaw decJaring-" =-fhat no one shall be
bound for the debt or default of another, by writing or
otherwise: Provided, that the act shall not extend to securityships ent~red into in the courts of justice. In other
words, that no one shall be bound as security for another,
in any case, by word, bond, note or indorsement, for an
ordinary contract between man and man."
" Should such a law be passed, no man will be trusted,
except upon the faith of his property, unless he has industry and honesty; debts will be small and few, cash payments generally required, and the necessaries of life cheaper to the consumer.
" Wives and daughters, I ask your powerful influence
and aid, to procure the passage of a law, cutting off the
powers of your husbands and fathers, to inflict ruin upon
you, by standing the security of worthless ad venturers.
The writer begs your indulgence to his feelings, when he
speaks of you in connection with ruined securities. He
has seen you turned out from your happy homes upon the
streets and highways in search of bread, the derision of
those who had been the cause of your destruction.
"For the sake of your families, fellow-citizens, Jet me
intreat you to refuse your names, should the Banks and
usurers outvote us, and the law not be passed. If you go
security, what right have you to hope that your house will
be your own to cover the heads of your wife and children;
you whose lauor furnishes us all with bread, I ask-is not
the speculator, the idle and worthless coxcomb, who boldly solicits credit and obtains it, more encouraged in society than the most honest and industrious of yOll, who hy
hard and daily labor earns his bread? I appeal to you
who till the earth, whom I hail as especial friends; I appeal to the mechanic, with the sweat and dust of labor upon him, are you not ridden down by unprincipled adventurers, in cloth antI ruffies, who, but the other day, through
sheer worthlessness, deserted the plough, the plane, or the
trowel, now turned merchants, or mock gentlemen in some
form, upon the credit of those from whose side they so
lately deserted 1 Bankrupts in purse, and knaves in prin-

138

BANKING IN THE SOUTHWESTERN STATES.

ciple, with nothing to recommend them save impudE1nce,


and the fine clothes bought with the money you have paid,
or will be forced to pay, as their securities. Will you longer be imposed upon 7 I hear you vociferate the energetic
NO: you are mistaken, my worthy friends, I know your indulgent natures; a hundred times ha,-e you determined,
and been ready to take a solemn oath you would never
again go security, and as often wanted firmness to resist
the succeeding impudent request. 'rhousands have I known
ruined, calling heaven to witness every time they lent their
names, that they had gone security the last time. You
cannot help it, citizens: it is a weakness of your nature.
Step fi)rward boldly and confess that you cannot conquer
it, and instruct your representatives, to pass a law to protect your frailty, and guard you against those mistaken
friends, or designing knaves, threatening your destruction."
Judge Catron may spare himself further labor. The present rage in the West and Southwest, is for State Banks of
various forms. Political power and monf'y power are to
be henceforth in the same hands. Our present contests are
less for the honors than for the emoluments of office. Their
vioJence is to be increased by making the capital and the
credit of the different State Governments the prizes of the
successful party. In the regulations which may be made
tor the distribution of loans, there may be great apparent
fairness; but the praetical operation of the system must be
for the advantage of a small part of the community, and
the disadvantage of all the rest. A new kind of aristocracy, a kind of half-political, half-moneyed aristocracy ~ will
spring up in the land.
The State Governments have no constitutional power to
establish State Banks, or any other kind of paper-money
issuing institutions.
They are expressly prohibited to
"emit bills of credit." Qui fruit per alios, facit pC'1" se.
lIe who does a thing by others, does it himself. State
Banks and incorporated paper-money Banks are palpable
violations of the Constitution, and would be acknowledged
to be so by every body, if interest did uot blind men's eyes
t.o the truth.
The business of lending money is no part of the duty of
any Government, either State or Federal. If a Government has more funds than are required for public purposes,

139

BANKING IN THE SOUTHERN STATES.

its duty is to remit part of the public taxes. Banking and


brokerage are the proper businesses of such private citizens as choose to engage in them, protected by the same
laws that protect men engaged in other businesses.

CHAPTER XVI.

Of Banking in the Southern States.


'"rhe Banks of the South found it convenient to suspend
specie payments, soon after this measure was resolved on
by the Banks of Philadelphia; and an extension of Banking operations in that quarter was the necessary conse,
quence. 'Vithaut resorting to other evidence, the following tabular view of the amount of Bank capital in the four
Southern States, in two different periods, will be sufficient.*

1814
Georgia,
South Carolina,
North Carolina,
Virginia,

62a,580

1816

1,502,600

3,730,900

3,832,758

1,576,600

2,776,000

3,592,000

5,521,415

9,52:3,080

13,632,773

Aceording to Mr. Gallatin's tables, there were fourteen


Banks in these States on the filst of January, 1815, and
twenty-three on the first of January, 1816. Two of the
Ban]{s of Virginia had, in this interval, increased their circulation from 4,616,240, to 6,031 ,446 dollars. Of the circulation of the other Banks in the South, we have no returns. The aggregate increase was, no doubt, very considerable, but it was not sufficient to bring down the currency to a level with that of l\Iaryland and Pennsylvania.
In the tables appended to l\Ir. IH~Duffie's report, it is stated
that, on the 1st of July~ ]816, when ~ubscriptions were
made to the stock of the United States' Bank, specie was,
at Philadelphia, at 17 per cent. advanee, and at Washington, at 20 per eent., while it was only 9 a 10 at Norfolk,
and 6 a 8 at Charleston.
The pric~ of specie in North
Carolina and Georgia is not mentioned, but North Caroli'* See Mr. CrawfiHd's Report in 1820.

140

BANKING IN THE SOUTHERN STATES.

na notes bore a premium of four per cent. at Philadelphia


on that day, and New York notes were at a discount of 5
n 9 per cent. at Savannah.
The comparative moderation of the southern Banks is
to be ascribed to the fact, that, as but a small portion of
the revenue from the cnstoms is collected in the South,
they did not get many of the treasury notes which were
issued in the vear after the war.
When theU nited States' Bank began operations, it did
not include the offices at Charleston and Savannah, in the
plan for the " equaliz~tion of exchanges." It however gave
these offices authority to do an extensive business. By
the 29th of July, 1817, the branch at Charleston had made
discounts to the amount of 850,000, and that at Savannah
to the amount of about 300,000 dollars. On the 23d of
June, 18 L8, the total of discoun~s at Charleston, including
bills of exchange and stock notes, was about $2,700,000 at
Savannah $1,000)000, at Fayettville $500,000, at Norfolk
$1,400,000, and at Richmonu $3,000,000.
'This increase of credit dealings in the South did not
improve the state of the currency: and the attempts that
were made to support excessive issues of paper, by importing specie, proved utterly unavailing. The directors of
the Bank of the State of South Carolina say, that "in
the first six months of 1818, it is probable that upwards
of $800,000 in specie were thrown into general circulation in the city of Charleston. It is probable that by the
the first of November in that year, not 50,000 dollars of
the whole sum remained in the State; we are confident
that not $10,000 could have been found in Charleston."
The Bank of the United States was, to promote its own
views, very indulgent to the Banks of the South, at the
commencement of its operations.
Without being so, it
could not, as it~ specie capital was inconsiderable, and
as the deposits of public money were small in that quarter, have done much business at Savannah and Charleston. It freely received the notes of the local Banks, and
as it did not press for immediate payment, it encouraged
them to make additional issues. The Bank of the United
States could not, however, defer its demands forever, and
when it called for payment, a conflict commenced between
it and the local Banks, which was not fai'rly terminated for
several years.

BANKING IN THE SOUTHERN STATES.

141

As some movements in the Legislatures of Georgia and


South Carolina had, at an early period, indicated a disposition to em barrass its operations, the United States' Bank
did not deem it prudent to use the mo~t rigorous measures
with the Banks of Charleston and Savannah. Fully aware of
this f,lct, the Banks south of Virginia began, in the crisi~
of 1819, buldly to a'arle specie 'payments, if they did not
make a full and formal suspension.
The Bank of Darien, Georgia, f(]r example, adopted the
following course of procedure, as is described by an eye witness: "Persons making demands on the Bank of Darien mu~t
swear before a justice of the peace, hi l1ank, to each and
every bill presented that it is his own: that he is not agent
for any other person; and that oath must be made in the
presence of at least five directors and the cashier: it also
makes the person so demanding specie subject to a charge
of $1 37J on each bill, which must be paid on the spot,
and unless you find five directors and the cashier together,
you cannot make a demand."*
As the United States' Bank could not easily get payment from the local Banks, and as specie was almost immediately demanded for such of its own notes as it issued
in the South, it founu it politic, if not necessary, to receive
what was due on account of the imposts in North and
South Carolina, and Georgia, in notes of the Banks of
those States. So far as it traded, it traded on these notes,
issuing none of its own. This arrangement gave the southern
Banks a monopoly of the profits deriveable from the circulation of paper: but they were not satisfied, because they
had not also the profits deriveable from the use of the public deposits. When the United States' Bank, in the spring
of 1820, made a demand on the Banks of Savannah, for
payment of a considerable amount of notes, which had
been received principaHy in payment of duties, those
Banks refused either to make payment in specie, or to
allow interest on the sum which was unliquidated. The
United States' Bank then protested a large amount of their
notes: and soon afterwards, five hundred dollars in notes
of the State Bank of Georgia were advertised to be sold
by auction, for specie, in lots to suit purchasers, in front
of the Exchange at Savannah.
If

Nile's Weekly Register, August 14th, 1819.

142

BANKING IN THE SOUTHERN STATES.

In August the Banks of Savannah had again the reputation of specie paying Banks: but they refused to give
money to individuals for their paper, unless those applying
for it would agree to take half the amount in bills of the
Darien Bank. It cannot, however, be said that they refused all kinds of accomodation to the public, for while
they would not pay cash for their notes, they would oblige
a holder of them by giving him a draft on New York at
three per cent. advance.*
In this contest the local Banks enlisted the feelings of
the Legislature of Georgia in their favor: and an act was
passed in the beginning of 1821, to repeal the law allowing twenty-five per cent. damages on non-payment of notes,
so far as it might operate in favor of the United States'
Bank; Such a disposition in the Legislature, was an
encouragement to the Banks to evade payment to individuals: and we read, without feelings of surprise, that on a
demand being made in April on the Planters' Bank of
Georgia for 30,000 dollars in specie, the cashier replied
that he would pay in cents only: and that, when a gentleman of Augusta made a demand for specie in June, cents
were tendered to him and counted out at the rate of sixty
dollars a day.t
From that time to this, the people of Georgia have suffered the evils of irregular Banking, sometimes in one
form and sometimes in another. The paper of their Banks
is usually at a discount in the Philadelphia market, exceeding the natural rate of exchange, that is, the cost of
transporting specie. In 1824, complaints were made that
H change"
bills, issued by individuals and corporations~
were in circulation. J n the same year we find the Governor
declaring" that all the Banks should resume specie payments without delay." If they all resumed them, they
could not all maintain them, for Mr. White, of Baltimore,
in a letter to the Secretary of the Treasury in 1830, speaks
of "intelligence having just been received of the failure
of some of the principal Banks of Georgia to redeem
their notes with specie." Complaints of sufferings by the
people of the State have been frequent. In 1824; and
1828 these complaints were very loud. When the Legis..
if

Niles, August, 26th, 1820.

t United Sta.tes Gazette of April 30th, and June 22d, 1821.

BANKING IN THE SOUTHERN STATES.

143

lature attempted to relieve the planters, by establishing a


Bank on the funds of the State, called the " Central
Bank," and opened that Bank for business at lVlilledgville
in 1829, " the rush for money was tremendous."
In South Carolina a disposition was evinced by a part of
the population, to make the suspension of specie payments
perpetual. Full proof of this is to be found in a long and
elaborate report by the directors of the Bank of the State,
dated October 1st, 1819, in which all the arguments of the
English Anti-Bullionists are placed in prominent relief.
The prosperity of the country from 1815 to 1817, is de~
picted in glowing colors. The effects produced by the resumption of specie payments are deplored as unnecessary
evils. "It becomes necessary to inquire," say the directors, "whether, in the present state of the world, a metallic currency, sufficient for the wants of our country, is attainable, and whether, if it be obtained, it will be worth the
necessalY cost: whether, ill fact, a currency equally good,
perhaps better, may not be establisheJ, without any of those
sacrifices which our country has already been obliged to
make, and which it must for a long time make, to secure
this fugitive and evanescent object. * * * In Great
Britain, where alone, in modern days,"gold and silver have
for a short time been left freely to find their value in an
unshackled market; they have been kno\vn to fluctuate in
value nearly 50 per cent. in the course of a few months:
a fluctuation which no paper currency has ever uhdergone,
excepting such as has been issued by the mandates of arbitrary and necessitous governments, where no value is received for it on its emission, no pledge given or secured
for its redemption."
The Bank of the State of South Carolina did not pay
specie regularly till the year 1823, and the United States'
Bank at Charleston, as it is stated in Degrand's Weekly
Report, " fostered the irregularity by aiding the circulation
of State Bank paper which was not convertible." Since
that time, Banking does not appear to have been less 'c regular" in South Carolina than in Pennsylvania: but as
" regular" Banking by corporations and with pat>cr money
may produce great evils, it might be worthy of inquiry if
part of the sufferings of the people of that State have not
their origin in this cause. The excitement, however, at

144

BANKING IN THE SOUTHERN STATES.

this moment, appears too great to permit such an inquiry


to be made.
Virginia has the honor of being the first State that took
effectual measures towards reforming the currency. This
she did in 1820, when she passed an act to prohibit the circulation of notes of a less denomination than five dollars.
Her Banking operations have never been less regular than
those of the Middle States: and she will probablY be one
of the first to establish a perfectly sound system of credit
and currency.
Of the condition of affairs in North Carolina, the reader
may judge, by the following extract from a report made to
the Legislature, at the session of 1828-29.
" The Legislature having laid down, in the charters of the
several Banks, certain fundamental articles for the government thereof, the committee assumed these articles as the
basis of their investigations, and proceeded accordingly to
inquire, in the first place, whether the stock of the several
Banks had been raised in the manner required by their
charters 1-The evidence received by the committee on this
point, shows that the charters of the Banks were disregarded and violated in the very creation of their capital.
"The charter of the Bank of Cape Fear, enacted in
1804, authorized that corporation to raise a capital stock of
$250,000; and the charter of the Newbern Bank, enacted in the sa me year, authorized that Bank to raise a capital stocK of $200,000; both charters directing the capital to be paid by the stockholders in gold or :3ilver. The
undersigned have received no evidence as to the mode in
which these Banks got into operation. It would seem,
however, that they contemplated, at the outset, an evasion
of the provisions of their charters. It is in evidence to the
undersigned, that soon after they went into operation, they
contri ved to get possession of nea rl y all the paper money
which had been issued on the faith of the State, which,
being at the time a legal tender, enabled them to evade demands for specie, which they did, by thrusting this ragged
paper at those who presented their notp.s for specie. In
1807, $25,000 was added to the capital stock of each of
these Banks; in 1814, their charters were extended, and
they were authorized to increase their respective capitals to
$800,000 each, viz. the Newbern Bank was authorized to

BANKING IN THE SOUTHERN STATES.

145

raise an addition to its stock of $575,000, and the Bank of


Cape Fear, an addition of $525,000. It is in evidence to the
undersigned, that the whole of this additional stock was
manufactured by the Banks themselves, and that, in many
instances, favored individuals were perfnitted to acquire
stock by subscribing their names, and putting their notes
into Bank, without advancing a single dollar of actual capital. It fo]Jows, that the whole amount of the interest drawn
from the people, on the loans made on this fictitious capital,
was a foul and illegal extortion. The effect of the transaction was the same as if the pretended stockholders had
individually executed their notes of hand, without interest,
to the amount of the notes which they issued from the Bank,
and exchanged them with the people for their notes, bearing interest, and renewable every ninety days. Taking the
issues made on this fabricated capital to be in proportion
\-"ith those made on the former capital, they must have put
into circulation, on the faith of the assumed stock, between
3 and 4,000,000 of notes; and thus, a parcel of individuals,
under the name of stockholders, but who, in fact; held no
stock, contrived to exchange their notes, without interest,
to the amount of 3 or 4,000,000, for the notes of the people, bearing an interest of more than 6 per cent.; and
while the property of the people was pledged for the payment of the notes they had given to the stockholders, there
was not a dollar or an atom of property pleged to them for
the payment of the notes they had received from the stockholders; so that for the use of their notes, which, intrinsically, were of no value at all, the stockholders of these two
Banks have drawn from the people, by way of interest,
something like $200,000 annually.
" The charter of the State Bank, enacted in ]810, authorized that corporation to raise a ca pita] stock of $1,600,
000, and directed books to be opened to receive subscriptions for that sum, requiring, at the same time, that individuals subscribing for stock, should pay three-fourths of
the amount subscribed in gold or silver, and the other fourth
in the paper currency issued on the faith of the State.
Books were accordingly opened, and the sum subscribed,
including the subscription of $250;000 for the State,
amounted to $1,175,600. Of this sum, only $500,000, or
threabouts, was paid into Bank, as required by the char-

146

BANKING IN THE SOUTHERN STATES.

ter, in gold or silver. The balance was pa-id in Bank notes.


Upon the capital thus constituted, the Bank went on to operate till November, 1818; at which time, the proportion
between the notes in circulation and the specie on hand,
was nearly 12 to 1. In other words, the Bank had largely
upwards of 1 t and nearly 12 dollars of their notes in circulation, for every dollar of specie in their vaults. The
directors then ordered books to be opened to receive sub..
scriptions for the $424,000 which remained unsubscribed
when the books were first opened; and it forms a part of
the order by which this additional subscription was au ..
thorized, that the subscribers might pay it in the notes of
the Bank. The reason assigned for this operation of the
directors, is, that they were desirous of applying the sponge
to a part of their outstanding debt, and by way of calling
in $224,000 of their notes, they authorized individuals
who held them to E,U bscri be for stock in the Bank to that
amount, and pay for it in their notes. Thus, at a time
when they had in circulation nearly 12 dollars in notes for
every dollar of specie in their vaults, and when most obviously they were unable to redeem their notes with specie,
they purchased them from the holders by the sale of stock
which they themselves created by the mere act of subscription. This the undersigned conceive to have been a
most flagrant and fradulent VIOlation of their charter.
The charter only authorized the Bank to operate on a
real and intrinsic capital, and directed that the capital
should be paid into the Bank by the stockholders. In
the transaction alluded to; the Bank its~lf, by a scribbling
process of its own, created the capital, and paid off a
portion of its debt, by the very act by which it also increased its capital. A circumstance, too, which greatly
adds to the enormity of the transaction, is, that before all
the instalments became payable, the State Bank, the Bank
of Newbern and Bank of Cape Fear entered into R formal
resolution, through their delegates assembled at Fayetteville,
in June, 1819, not to pay specie: and their notes immediately fell to to 15 per cent. below par. Then commenced
the system of usury and extortion, which has since been
carried on with such unparalleled audacity, under the
name of exchange. Up to this time! viz., 1819, the high
tide of commercial prosperity enjoyed by the country, ena-

BANKING IN THE SOUTHERN STATES.

147

bled the Banks to keep afloat, notwithstanding the artificial


character of their capital, without resorting to this daring
and dishonest expedient. They had kept pace in their
operations with the increasing resources of the country,
so as to absorb, by way of interest on discounts, nearly all
the profits on the immense business then doing; and ha v..
jng raised against the people a debt equal to the vast resources which, from 1815 to that time, they had derived
from their foreign commerce, as soon as the alteration occurred in Qur foreign relations and those resources were
cut off, the business of the country, unable any longer to
employ the immense circulating medium which had been
created by the Bank~, and their notes returning upon them
for redemption, they determined to extort from the people
additional premiums on lemus in order to enable them to
meet the demands of their creditors. A scene of extortion
and usury ensued, which has no parallel in the annals of
avarice-the strange spectacle of moneyed institutions exilcting specie in exchange for their notes, which they
themselves refused to redeem with specie. To show the
gross character of the usury thus carried on, the undersigned will suppose a case: An individual applies to the
Bank for a loan of 1000 dollars, and offers his note to be
discounted for the amount. lIe is told by the Bank that
his note cannot be discounted, unless he will exchange
with them 1000 dollars of specie funds, for 1000 dollars of
their notes. Taking their notes to be 5 per cent. below par,
] 000 dollars of their notes would 'in fact be no more than
950 dollars. So that the substance of such a proposition
would be, that the borrower should give the Bank fifty
dollars as a premium for the loan of 1000 doHars: which,
added to the legal interest received in advance, would
amount to something more than 11 per cent. In some
instances, the usury has been still more rank. Quantities
of their notes have been loaned to individuals on condition
that the whole amount should be returned in ninety days
in specie funds. At the rate of depreciation before stated,
such a transaction would be equivalent to the exaction of
~6 per cent.
The evidence received by the committee,
~hows that the State Bank and Bank of Newbern have
been guilty of such practices since the summer of 1819.
There is no evidence that the Bank of Cape Fear has. It

148

BANKING IN THE SOUTHERN STATES.

appears in aggravation of the guilt of these practices, that,


in the case of the State Bank, the specie funds thus extorted from the people in exchange for their depreciated
notes, have been employed by the Bank in purchasing
back those notes at a discount: That they have, at times,
employed agents in New York and Petersburg, to buy up
their notes: and that about twelve months since, a parcel
of their notes was bought up by their agent at Petersburg
at 8 per cent. discount. It is stated by the President of
the Bank of Cape Fear, for whose testimony too lnuch
respect cannot be expressed, that the notes of that Bank
have, at different times, been bought up at a discount by
the Bank. That. a quantity of its notes were so purchased
in anticipation of the late call of the stockholders; and
that during the panic occasioned by that call, something
like 500 dollars of their notes were bought up by the Bank
at a discount of 5 per cent. The depreciation of the notes
of all the Banks, occasioned by the refusal of the Banks to
make good their notes with specie, has been productive of
incalculable mischief to the community; and it is no inconsiderable aggravation <;>f the mischief to know that, in
the case of the State Bank, large quantities of their notes
have occasionally been thrown into circulation by themselves
in the purchase of cotton. It is in evidence to the undersigned~ that they laid out at one time 30,000 dollars of
their notes in the purchase of cotton, on which they made
a profit of more than 8,000 dollars. Another remarkable
fact in the history of the State Bank, which the undersigned will notice in passing, is, that to protect themselves
from demands for specie, they determined at one time to
administer an oath to an individual, presenting their notes
for specie, in which he was compelled to state that he was
not a broker. It further appears to the undersigned, that
all the Banks have bought up United States' Bank notes,
for which they exchanged their own notes at a discount;
and the State Bank and Bank of Cape Fear, in direct violation of their charters, have purchased stock to a considerable amount in the United States' Bank. The State
B3.nk appears to have made a most convenient usc of this
arrangement. It appears from the evidence of the late
President of that Bank, that they have been in the habit of
rendering false statements to the Legislature; and that in

BANKING IN THE SOUTHERN STATES.

149

May last, when they stated in their exhibit that they had
on hand 214,000 dollars in specie, 140,000 dollars of it
consisted of stock in the United States' Bank. So that, in,tead of keeping the specie in their vaults to take up their
paper, they have vested it in the stock of another Bank,
and were deriving interest from it. It further appears,
from the evidence of the same person, that the amount of
actual specie now in the State Bank at Raleigh, is not
more than 300 to 400 dollars: at any rate, not exceeding
1000 dollars.
" The undersigned have now gone through the details of
the evidence, and stated all the essential facts collected in
the course of their examination. I-Iaving thus embodied
a simple statement of the facts, they would here close their
report, and leave the conclusions and arguments to the
Legislature; but they eel themselves impelled, by a solemn
sense of the duty which they owe to the Legislature and
the country, to take a brief view of the present relation
between the Banks and the people, and the consequence
which must ensue if the Banks are permitted to continue
their operations; and, in doing so, to advert to the report
of the committee of the stockholders of the State Bank at
their late general meeting. It appears that the people of
North Carolina, having already paid to the Banks, since
they went into operation, a profit of about 4,000,000 dollars on their stock-stock, too, three-fourths of which was
manufactured by the Banks themselves in a fictitious and
fraudulent manner-that having paid this immense sum,
exceeding four times the amount of the actual capital stock
ever paid into Bank accord ing to law, they still hold the
notes of the people for more than 5,000,000 dollars, about
four times the amount of the whole circulating medium of
the State. Thus it is in the power of the Ban ks absolutely
to extinguish the currency of the country, and when they
have taken every dollar out of circulation, still to have a
debt against the people to the amount of about 4,000,000
dollars. We say it is in their power to do it; and they intimate pretty plainly that they will do it. The communication from the stockholders of the State Bank, now before the committee, expresses the opinion that it is for the
interest of the stockholders to withdraw their money from
the Bank, and take it under their own management; and

150

BANKING IN THE SOUTHERN STATES.

contains a resolution by which they have proclaimed their ;


resolution to assemble in June next, in order to determine l
whether they will proceed to wind up their affairs; and~'
consequently, the affairs of the people of North Carolina.
Thus having for years contrived, by illegal and fraudulen
practices, to draw from the people all the prqfits of their;
labor, and having by these practices placed the people in
an impoverished condition, where they can no longer pay
them larga profits, they are now preparing, by one fell
swoop, to extort from them the actual means of subsistence~
But the question occurs, will .you permit it 1 'ViII you per..
nlit a parcel of men, who have long set th~ laws of the
country at defiance, togo on and complete the ruin they
have already so nearly accomplished? Will you not bring
them to the observance of the law? Will you not at length
cause them to feel the rod of that law they have so long
despised and violated? r.rhese questions, your committee
conceive, answer themselves. When the Legislature is
called upon to determine whether their constituents shall
live under a government of laws, or a government of cor"
porat.ions, it cannot be difficult to decide. The undersigned, therefore, recommend to the Legislature the adoption of the following resolution : "Whereas it appears to the Legislature that the State
Bank of Newbern, and the Bank of Cape Fear, have violated their charters and committed great frauds on the people of North Carqlina, whereby said Banks have forfeited
the powers and privileges granted in their charters: Therefore,
" Be it Resolved b.y the General Assembly of the State
of North Carolina, That the Attorney General be, and he
is hereby, directed forthwith to institute a judicial inquiry
into the conduct of the said Banks: and that he prosecute
such inquiry by writ of Quo Warranto, or other leg'll process."
No such judicial inquiry appears to have been instituted.
The practical sovereignty remains with the Banks of North
Carolina: and they respect the laws and public opinion,
just so far as they believe t.o be conducive to their OW\41
interest.

BANKING IN NEW ENGLAND.

151

CHAPTER XVI.

Of Banking in New England.


We have searched the public libraries of Philadelphia
for particulars respecting the New England Banks that

broke previous to the war, but have been able to find no


pocument of any importance, except the report of the committee of the Legislature of Rhode Island in relation to
the affairs of the Farmers' Bank of Gloucester. Many writers allude to the great distress that the operations of the
~oneyed corporations produced in New England about the
years 18U8 and 1809, but they do not even give a list of
the Banks that then stopped payment.
That the distress was great, we have incidental proof in
the rigidity of the laws afterwards adopted to enforce specie
payments. All experience shows that till the evils produced
by moneyed corporations become absolutely unendurable,
the proper remedy is not applied.
After the commencement of hostilities with Great Britain, the New England Banks were obliged, in order to
Inaintain specie payments, to wind up nearly all their credit
dealings. This operation necessarily produced much distress, and greatly increased the dissatisfaction with which
the people of that section of the Union regarded the warlike policy of Government..
1.'his distress does not appear to have terminated with
the war.
For, a Philadelphian, writing in August, 18]5,
says, after mentioning the curtailments made by the New
England Banks, "Real estate would not command prices
nigh its former \Talue; merchandise fell greatly below its
usual rate; whilst mOlley in the market was worth two per
qent. a month. This is the existing state of things in Boston. * * * * It is manifest that the operation of the
r~gid laws of Massachusetts is highly injurious to the commerce of their towns, and we do not see that the boasted capacity of their Banks to pay a few notes in specie, renders
tJJ,eir situation more enviable than our own."*
The natural anxiety of the New Englandmen to get payment of what was due to them by the people of the Middle

*''' Inquiry," &c.

152

BANKING IN NEW ENGLAND.

States, was attributed to ill-feeling. "Circumstances," said


a New York writer, C, have excited a spirit of envy at our
prosperity, which has superadded a restless malignity of
effort to increase artificially and aggravate the evils of an
unfavorable balance. Whoever has attended to the uniform
language of eastern men and eastern writers, cannot have
failed to discover this spirit-they will not believe that I
speak of its authors with undue severity."*
The apparent prosperity of the l\liddle States was such
as might well excite envy; but it was a wholesome adversity New England was experiencing. Her currency could
not, indeed, be called perfectly sound, for, as appears from
Mr. Crawford's Report, many of the inconvertible notes of
the other States found their way into her territory. But,
as the people had got them for less than their nominal value, they sustained no other loss except that which arose
from the notes undergoing an additional depreciation while
they remained in their hands. The standard of value by,
which contracts were regulated in New England was not
affected; and the Banks being prevented from suspending
specie payments, were prevented from exciting a wild spirit
of speculation in the people.
The natural consequence of the suspension of specie payments in the other States, was an influx of specie into New
England. That this was ve~y great, may be inferred from
the fact that the Massachusetts Banks which had $1,560,004
in specie in 1811, had, in 1814, specie in their vaults of the
amount of $6,393,718. It was useless to keep such an
amount of specie lying dead. The abundant issues of treasury notes by the Government afforded easy means of paying duties. There was enough, either of specie or of notes
of different kinds in circulation, to supply all the wants of
domestic trade. The specie was, therefore, exported with
so much rapidity, that the amount in the Boston Banks,
which had been $5,466,759 in June, 1814, was, by June,
1815, or about five months after the return of peace, reduced
to $2,125,076; or, if the amount in the Worcester Bank be
ineluded, to about $2,800,000. '"fhe exportation of specie
did not stop till there was no more left than was just sumif. " Statius," in the New York Columbian; repubJishe(J by Mr. Carey,
with commendations, as an appendix to his" Letter toMr. Calhoun,"
1816.

BANKING IN NE\V ENGLAND.

153

cient to support the credit of the notes in circulation: so


that, when the United States' Bank commenced operations,
the other States could derive no important supplies of metallic money from New England.
From acorn bination of causes, the operations of the
United States' Bank were of limited ext@nt in New England. The channels of circulation there were fully occupied by local Bank notes which had never been discredited. The new institution had so little metallic capital, that it could not entcr into competi tion with the local
Banks; and all the funds it acquired as receiver of the
public moneys at Boston, were wanted to support its operations in the South and vVest.
lIenee, the reaction of 1810 was less sensibly felt in
New England than in other parts of the Union.
'rhe ordinary operations of Banking in New England,
are, however, such as to make men lament that the system
was ever invented. Expansions and contractions have, as
we ha.ve before had occasion to remark, a more striking
effect on the operations of manufacturers than on those of
agriculturists. So facile is production with modernma
chinery, that a small rise of prices causes a great increase
of manufactured articles. In a short time, the Banks are
forced to contract. Then there is a scarcity of money and
a glut of manufactures. Then the manufacturers petition
for new additions to the duties on imports. The tariff is
raised accord:ngly. Enterprize is again awakened. There
is a demand for capital: and the Banks supply - - credit.
There is, however, no more solid ground for an extension
of credit after the passage of a new tariff act than there
was before. Not more than a year or two elapses before
the necessary reaction commences. The manufacturers,
again startled with the prospect of ruin, apply for additional
"protection." It may be granted; but it is doubtful if any
tariff that can be established, will, while this system of
money dealings continues, be able to protect multitudes
from ruin. 'Ve know some very zealous and very intelligent friends of the "American System," who are decid..
edly of opinion, that if there were no moneyed corporations
and no paper money in the country, the manufacturers
would require no protecting tariff: If the excitement in
relation to protecting duties were less violent than it is at

154

BANKING IN NEW ENGLAND.

this moment, we might invite particular inquiry into the


effect paper Banking has on manufactures. We might
illustrate our argument, by showing the effects expansions
and contractions of Bank medium have had on manufacturing operations in England.
The .multitude of Banks in New England, makes it
necessary for those concerned in them to resort to a
variety of expedients to sustain them in their operations.
Of these expedients none but the concerned could give a
full account: but some idea of their nature nlay be formed
from the disclosures which are occasionally made.
Mr. Niles, in his Weekly Register for September 8th,
1821, for example, gives the following quotations from the
New York Journal:" We observe by a notice in the ., Dutchess Observer,"
that the farmers of Dutchess County have been shorn of all
their wool by a most singular operation-or, in other words,
that nearly all the wool in that county had been sold to J.
Butler, cashier of the Litchfield Bank, who had recently
failed, and assigned his factory, woo], &c. to the Bank, as
security for his debts, leaving the farmers to suffer.
" The story, as told by one of the shol'n, is briefly this:
-The Wolcotville Factory, formerly belonged to Mr.
Wolcott, who failed, bp.ing largely indebted to the Bank.
As the Bank is prohibited from buying and selling property, their Cashier, Butler, became nominally the proprietoI'. The belief that James Butler acted in behalf of
the Bank, was so universal, that he obtained an unlimited'
credit. 'he agents for the factory have recently made
large purchases of wool, in the usual manner, upon the
notes of James Butler. A great proportion of the woo!
raised this year in Dutchess County has thus been purchased and carried over to Litchfield, and as soon as the
same is well packed away, James Butler, the Cashier, is
discovered to be a defaulter to the Bank for some 16,000
dollars, and he assigns his factory, and the stock thus fairly
and recently acquired, to the Litchfield Bank, The Bank!
is paid-the farmer has a Litchfield shearing-and James
Butler, the cashier, is an insolvent."
The art of forming Bank capitals by discounting thai
stock notes of subscribers, appears to be as well understood
in New England as in Pennsylvania. The Kennebeck!

BANKING IN NEW ENGLAND.

155

Bank, in Maine, had a nominal capital of 100,000 dollars;


but an official investigation, in the year 1826, showed that
89,370 dollars of the whole amount consisted of stock
notes: that the directors held nine-tenths of the stock, and
that they were in debt to the Bank not only for the amount
of their stock notes, but in an additional sum of 34,400
dollars. For two years, this Bank divided 12 per cent. per
annum.
The expose of the Bath Bank in t.he same State, was
very similar to that of the Kennebeck Bank. Nearly threefourths of the capital were represented by stock notes, and
nine-tenths of the stock were owned by the directors.
More than three-fourths of all the discounts, in addition to
those on stock notes, were made to the same directors.
The capital of the Bank of Vassalborough consisted of
300 shares, of which 283 "belonged either personally or
representatively to a partnership at Hallo\vell, A. & J. Leonard, the former of whom is President. The whole amount.
of money which the Bank had on hand on the 21st of June,
1826, was $40,000; $36,000 of which was in the hands of
the firm above mentioned, and 4,000 in the hands of the
Cashier. The Bank had no record or charge to exhibit
against the Leonards, who had about the whole property of
the institution, and the Cashier had taken up his bond.
The Commissioners were requested to postpone their report, till the Bank concerns could be put into some form
and comeliness, but the disorders of the body politic appeared too incurable to be thus tampered with."
On an investigation of the affairs of the Burrillville Bank
of Rhode Island, it was found that. only 6000 dollars of the
capital had been paid even in stock notes.
Bank capitals being thus easily formed, and legislative
charters oonferring great privileges, we cannot wonder at
the multiplication of Banks in New England. Rhode Island, which had thirty-four Banks in 1820, increased the
Gumber to fifty by the year 1830: and Massachusetts, in
the same period, made an addition of forty to the number
of her Banking institutions.
In some of their recent acts, the Legislature of Massachusetts have endeavored to guard against the formation of
Bank capitals out of stock notes, but that it is possible for
the getters up of Banks to evade, if so disposed, even the

156

BANKING IN NE\V ENGLAND.

strongest legal enactments, may be learned from the following extract from a report made to the Senate of the State,
on the 25th of January, 1830.
" The Sutton Bank was incorporated the 11th of March,
1828. The act of incorporation provides-" That the capital stock of said corporation shall consist of one hundred
thousand dollars in gold and silver, to be divided into shares
of one hundred dollars each, which shall be paid in the
manner following, viz. onehalf part thereof on or before
the first day of October (then) next, and the remaining
part thereof on or before the first day of March, in the
year of our Lord one thousand eight hundred and twentynine." And it further provides, that no moneys shall be
loaned or discounts made, nor shall any bills or promissory
notes be made or issued from the said Bank, until the capital subscribed and actually paid in, and existing in gold
and sil ver in said vaults, shall amount to fifty thousand dollars, nor ulhil the said capital stock, actually in said vaults,
shall have been inspected and examined by three Commissioners, to be appointed by the Governor for that purpose,
whose duty it shall be, at the expense of the said corporation, to examine the money actually existing in said vaults,
and to ascertain, by the oaths of the directors of said Bank,
or a majority of them, that the said capital stock hath been
bona fide paid in by the stockholders of said Bank, and towards the payment of their respective shares, and not intended for any other purpose, and that it is intended there
to remain as part of said capitaL"
" On the 26th day of September, 1828, the Governor,
in compliance with an application for that purpose, made
by a committee of the subscribers for stock in said Sutton
Bank, appointed Commissioners to examine the moneys actually existing in vaults of said Bank, as is provided in the
second section of their act of incorporation. On the 27th
day of September, 1828, the Sutton Bank borrowed, on a
deposit of fifty-one thousand dollars in the bills of the City
Bank, the sum of fifty thousand dollars in specie, for one
day only; this same specie was examined by the Commissioners, and the following certificates made out, viz." We, the subscribers, Commissioners appointed for that
purpose, have this day been shown, and have exalJlined, fifty thousand dollars in specie in the vaults of the Sutton

157

BANKING IN NEW ENGLAND.

Bank, which was paid in. by the ::itockholders at their first


jnstalment, agreeably to their Act of Incorporation, passed
the eleventh day of March, 1828.
JONATHAN LELAND.

A MASA

ROBERTS.

SAMUEL WOOD.

September, 27th, 1828.

Commissioners."
Eoston, Sept. 27th, 1828.

" SUFFOLK, SSe

"Then personally appeared Hezekiah Howe, Jonas


L. Sibley, Joshua W. Leland, and Thomas llarback, being
a majority of directoro of Sutton Bank, and made oath
that fifty thousand dollars in specie by them shown in their
vaults, was the first instalment paid by the stockholders of
their Bank, towards the payment of their respective shares,
and not for any other purpose, and that it is intended therein to remain, a part of said capital.
" Before me.
" ELIPHALET WILLIAMS,

" The bill~ and ;)jJr;c'ic were rnen

Just. Peace.

Tt.;-r,:.uJLUng (;(1;

lkis wlLOle

business, accomplished wit/tin an hour, and all of it done


within the walls of tlte City Bank, in tlte city of Boston.
" It appears from the books of the company, that the several payments for the first instalment were made on the
first and sixth days of October, 1828, and on the same days,
almost all the stockholders are charged with notes for the
same amount as their respective instalments: in two instances, notes were taken from individuals e<iual to their
own subscription and the sums due from their minor children, in whose names stock had been subscribed: in two
instances only, and those for a small amount, it appears any
payment was mtide in money.
'ao On a petition to the Legislature, praying that they
might be allowed further time to pay in the remaining moiety of their capital, " An act in addition to an act to incor..
porate the President, Directors, and Company of the Sutton Bank,' was passed on the 20th of February, 1829,
which provides, 'that the said fifty thousand dollars shall
be paid in gold and silver, in the manner following :-twenty-five thousand dollars on 'or before the first day of June
next, and the remaining twenty-five thousand dollars on or

158

BANKING IN NEW ENGLAND.

before the first day of October next.' 1'he payment in


June was made in the same manner as the first payment,
as was also the last, with the exception of some shares on
which the instalment was not settled, either by note or
otherwise. The object of the Corporation in requesting
an extension of the time of making payment for their stock
in the DIode adopted by them, is not apparent, as it may be
supposed that it would be as convenient for them to make
their notes in March last, as in the months of June and
October following."
The case of the Eagle Bank at New Haven is deserving of notice. This Bank had a capital of 600,000 dollars,
and was accounted one of the safest Banks in New England. It failed in September, 1825: and from a report by
a committee of the Legislature, we give the following extract.
" George Bradly, Esq., the President of the Institution,
was employed as Cashier of said Bank from its commencement, until the year 1817, when on the resignation of
the Hon. Simon Baldwin, he was elected President. From
that period, the rn::::;iJeul. wa:s pCJ Il.'littcd to be the sole
manager of the institution. Its funds were placed entirely under his control and disposal. No rules were prescribed by the Board of Directors regulating the mode of trasa~t
ing the busine~s of the institution, or requiring its officers
to bring their doings under the review of the Board during
the aforesaid time. The President had not only in his
hands the entire control of the concern of the Bank, but
had, by accumulation of proxies, the power of appointing
the directors. In the successive changes of the Board,
no examination was made into the state and condition of
the Bank. The funds of the institution were employed in
speculations, and ad ventures unknown to the directors and
stockholders, and entirely unconnected with, and remote
from, the business of Banking. Loans were made in various
forms, and to a great extent, which were not communicated
to the directors, and in some instances by arrangement
not to be communicated. In this course of management
individuals obtained, without the form of security, and for
various purposes, funds of the Bank; e~ceeding the capital, and to supply the exigeneies created thereby, agents
were employed in whose hands the bills of the Bank were
placed to give them a forced and distant circulation, and

BANKING IN NEW ENGLAND.

159

by that means to sustain the operations of the Bank. Those


operations were not recorded in the regular books of the
Bank, but vested in loose papers in the custody of the
President, and in a book, in which the initial letters of the
n.ames of the agents were entered, and the figures containing the amount by them received. The statements annually rendered to the Legislature, have been calculated to
mislead, rather than to afford any information on which
the public could safely rely in relation to the true state and
condition of the Bank. In one instance 220,000 dollars,
issued upon the checks of the President, Normand Dexter, Henry C. Rossiter, the Messrs. Ifinsdales, and other
memorandums of indebtedness not entered upon the books
of the Bank, were not included in the reported amount of
circulation, making an error in the statement of the aforesaid sum of two hundred and twenty thousand dollars. In
the course of the last spring, other and further expedients
were adopted by the President to assist his operations. Without the order or consultation with the Board of Directors,
a new post note was procured, and notes in that. form
payable on different times, were placed in the hands of an
individual to an alarming amount, and without the precautions of security, to obtain by negotiations, the fund" necessary to relieve the increasing pressures on the Bank.
Those notes were not entered regularly into the books of
the Bank, and not known otherwise than casually to the
Board. The consequences of such expedients were in a
few months developed. The inability of the institution to
redeem its notes, brought to an end its operations as a
Bank in September last, and the distress in which the creditors were involved, and the great body of the stockholders, who cannot be supposed to ,have any agency in the
management, is too deep and too extensive to- require to be
stated by the committee."
In May, 1827, a report was made to the Legislature, that
the amount of Bank notes and post notes of the Eagle
Bank in circulation, was 815,478 dollars. In May, 1828,
another report was made, in wluch it was stated that
1,451,507 dollars were owing to the Bank from four individuals, viz: from J. & D. Hinsdale, 530,466 50: from
W. C. lloHy, 236,779 47: and from N. Dexter, and W.
C. Holly, conjointly, 568,801 98. The amount of debts,

160

BANKING IN NEW ENGLAND.

good, bad, and doubtful, due from all other persons to the
Bank, was then less than 200,000 dollars.
Governor Wolcott, in an address to the Legislature of
Connecticut, in May 1826, said, "Except in limited districts of the United States, the condition of our circulating medium is not very dissimilar to that which has been
established by arbitrary Kings in the North of Europe, and
especially by the Autocrat of the Russian Empire. There,
a Bank has been created, and its notes constitute a circulating currency throughout his vast dominions. The credit
which these notes obtain, is derived from revenues which
are established by his sole authority. These revenues are
not indeed paid in Bank notes, but the demand for silver
coin which the revenue establishes, imparts a forced, though
precarious, \Talue to the notes, which value is maintained
and regulated by the reciprocating influences which are
created between the supply and demand for paper and
silver currencies. The effect is, that all property is subject to his will.
"With us the currency which is required by the daily
exchange between all the people, and by which the transactions between farmers, mechanics, lj-\borel's, manufacturers,
and traders is regulated, is alm0st exclusively in Bank
Henes, which are issued by a great number of independent
corporations, which po::;sess an exclusive privilt:~ge of creating notes for their own benefit.
"This monopoly is here so exercised, that neither the
amount of currency which is issued, nor the amount of
that which is suddenly suspended, withdrawn, or annihilated, is subject to any practical limitation, other than
what must arise from the state of foreign and domestic
exchanges, the speculations of individuals, political events,
and the necessities or caprices of the numerous monopolizing incorporations, who entirely control the circulation
of the country.
" 'fhese last observations require no other confirmation
than a reference to the notorions facts, that no coins circulate among the people, except small sums of copper, and
the fractional parts of a dollar in silver, which is our silver unit. Our unit of gold i3 a coin of ten dollars, which,
with its fractional parts, in coins of five dollars, and twO
and one half dollars, have wholly vanished fromcirculation.

BANKING IN NEW ENGLAND.

161

H The effects produeed upon the people are, that no man


can travel fifty miles, in any direction, without receiving
paper notes of which he possesses no means of ascertaining the value, or even the authenticity, and this difficulty increases in proportion to the distance of an individual from
some one of these Banks. From these causes, the whole
country is subject to complex evils, arising from either a
redundant or too restricted circulation of the only currency
which can be obtained, and hence, sudden variations in
the prices of all exchangeable commodities, far exceeding
the customary profits of regular industry and commerce,
thereby converting all transactions of business, especially at a distance from the seats of foreign commerce,
into mere lotteries.
" It is amidst explosions of ~redit, principally occasion.
cd by the conduct of Banks, that every class of industrious citizens, and all our enterprizing young men, are exposed to repeated losses, against which no vigilance can
guard, and no prudence exempt them.
These distresses are inflicted upon the community, without any advantage being derived either to the State, to the
stockholders, to the depositors of funds, or to the honest
debtors to the Banks. 'l'hey are so frequent, so extensive,
and embrace so many personal interests and connexions,
that it seems impossible to impute them, in many inEtances,
to voluntary depravity. The inference must be, that our
system of Bank administration is essentially defective, and
that to correct it, all interests ought to contribute their
best councils and united efforts.
"There are fewer inducments at this time, why we
should su bmit to the evils of a paper currency, than exist
among any other people on the globe. We are prosecuting
an active commerce with states and nations where gold
and silver are abundant, and are, indeed, staple articles
trade. With these countries, the intercourse of the people
on both sides is founded on friendly and constant relations,
both personal and political. Our fabrics of iron, wool,
leather, wood, cotton, paper, and most other productions
of our arts and industry, are as necessary to these countries, as a fair relative proportion of their metallic wealth
has become essential to us.
" It is very consolatory to know, that the abuses of

or

16.2

BANKING IN NEW ENGLAND.

credit which are so prevalent, did not commence in thi~


State, and that although we have yielded to temptations
which we ought to have averted, our neighbors ouO'ht to
correct their own conduct before they censure us. 0
"In my opinion, we ought to manifest our sincerity by
immediately retracing the folds of the web in which we,
in common with our neighbors, have become entangled.
We can perceive that the issues of notes from the Banks
in this State have been annoying to the Banks in Boston
and New York, while theirs, founded on no superior security, have been equally injurious to us. Both parties ought
voluntarily to concur, in permitting specie to circulate
tl-iroughont the country, thereby rendering the capitals and
credit which exist conducive to mutual advantage:
"The objections to the measure which I deem it my
duty to recommend, will most probably be, that paper is a
cheaper instrument of circulation than metallic money: and
that the proposed restriction would diminish the dividend
of Banks, in which the State, the school fund, ecclesiastical
societies, the colleges and academies, other incorporations,
stockholders, and numerous individuals, are interested.
"But if all these objections were true in point of fact,
they would form very inadequate reasons for inflicting
great, increasing, and remediless injuries upon all the people and flu whole nation. These evils have not proceeded
from the incorporations as such, but merely because they
have issued bills of credit, as substitutes for the general
currency of gold and silver.
" If any principles are demonstrable by reason and experience, they are, that paper money is an interruption to
productive industry: that industry is the main source of
wealth, and that whatever diminishes production is injurious to the lenders of capital.
" The stockholders of Banks are only interested in having their capitals safely invested, in such a manner as to
secure the payment of a regular interest equal to the use of
the sums so advanced. It cannot promote their interests,
that all the capitals of this country, whether invested in
stocks or other transferable property, or in exchangeable
commodities, should be constantly exposed to the hazards
of rapid revolutions.
fC In my opinion, Banks which deal in circulating notes,

BANKING IN NE'V ENGLAND.

163

and which are safely conducted, require a much more


elaborate and expensive organization and system of detail,
than such as deal wholly or principa]]y in gold and silver.
llonestmen assume frightful responsibilities under the
forms by which many of these institutions are now conducted, and their hazards increase in proportion to the
number and variety of the notes which are received. l\Iany
counterfeited and altered notes are so skilfully prepared,
as to defy the scrutiny of adepts: and no safeguards are
provided to protect those who recei'"e them from the most
offensive accusations.
" The case is far different, in respect to transactions in
gold and silver: for by hydrostatic and other balances
which are cheap inslt"uments, \vhich have been known and
used since the time of Archimides, the purity and value of
coins can at once be ascertained with unerring certainty."
The struggles of the New England Banks with one another, to decide which shall have the greatest share of" the
circulation," inflict great evils on the community, in addition to those which are inflicted by general contractions
and expansions of Bank currency. Sometimes a number
of country Banks form a coalition to extend their operations, and the eity Banks form aIliances to resist them.
Sometimes some of the city Banks enter into arrangements
to aid the designs of the country Banks, and sometimes
these latter find efficient auxiliaries in the city brokers.
When a coalition succeeds in extending its issues of paper,
certain districts or certain classes of society experience all
the advantages, real or apparent, deriveable from an increase of circulating medium. This continues till the
counter-coalition succeeds in reducing the circulation of
its rivals: and then follows a reaction, with "scarcity of
of money," and its usual concomitants of bankruptcies and
public distress. A detail of the different measures of these
combinations and counter-combinations, and an account of
their effects on the community at large, would be interesting, but would exceed our limits.
A writer in the Massachusetts Journal endeavored, in
the fall of 1830, to show that the Banking system of that
commonwealth is the worst which could be devised; and
recommended as a substitute for it, a State Bank and
branches. His prominent objections to the present system

164

BANKING IN NEW ENGLAND.

are U that it renders necessary about seventy Bankin~ institutions,: that this number must every year be increased,
as the Legislature cannot properly withhold charters from
any who may apply for them: that the competition for
business between these numerous establishments, gives to
individuals a dangerous facility in obtaining loans, and
creates a system of fictitious credits, which, having no base
on real capital, must, at every pinch in the money market,
explode, and bring ruin upon the Banks and their debtors.
Other objections are, that the expen~es of these various
Banks in salaries, rent, &c., amount to a very large sum,
(in Boston alone to 120,000 dollars,) which expenses are
a tax upon stock:" that the country Banks are put to a
great expense in redeeming their bills in Boston; "and
that, after all, the notes of tOOse Banks form a currency, of
different and fluctuating value, instead of that steady and
uniform currency which public convenience requires."
From accounts recently published, it appears that the
number of Banks in Massachusetts, in August, 1832, was
eighty-three, having nominal capitals of the amount of
$24,520,000, notes in circulation of the amount of $7,122,856, and specie on hand of the amount of $902,205 75.
Of these Banks, twenty-two were in the city of Boston.
The greatest amount of specie in anyone of the city Banks
was $127,131 43; the smallest was $2,415 41. The greatest amount of specie in anyone of the sixty-three country
Banks, was $22,966 90; the smallest was $1,022 97.
Massachusetts was first in adopting the paper money
system; and she will probably be among the last to abandon it. Its ramifications there are so numerous, that nearly all the members of the community are compelled to give
it either a willing or an unwilling support.

BANKING OPERATIONS FROM

1814-15 TO 1820-21.

165

CHAPTER XVIII.

General View of Banking Operations from 1814-15 to


1820-21.
In the tables appended to J\ir. Secretary Ingham's Report
on the Gold Coinage, the following is stated to have been the

price of specie, at the dates and places below mentioned.


1814.
September
October
November
December
1815.
January
February
MaITh April
l\lay
June

July
August September
October November
December
1816.
January
February
March -

Baltimore.
Philad.
20 pr.ct.adv.
15
10

14
20
5
5
10

15
2
5

14
16
20
19
20
21!
15
18

5
9
11
11
15
15
16
14

15

14
14
12

13

18

April

23

14~

l\;lay

20
20
15
12
10

14
16
15
10

June

July
August
September
October
November
December
1817.
January
February

N. York.

7~
9~

9
9

7
7

3
2~

51
52

11
14
12!
13
16
12
12~
12~

9
12~

10&
J2~
12~

6
5
3
2
l~

2!

4~

2&

2!

From the rates of exchange on London. in New York


and Philadelphia, in the months in which there are blanks

166

1814-15 TO 1820-21.

BANKING OPERATIONS FROM

in the table, the price of specie appears then to have been


a few per cent. less in Philadelphia than in Baltimore; and
a few per cent. less in New York than in Philadelphia.
In the Appendix to the Report of the Committee of the
Sen